Holmberg v. Morrisette
| Citation | 800 F.2d 205 |
| Decision Date | 03 September 1986 |
| Docket Number | Nos. 85-5138,85-5221,s. 85-5138 |
| Parties | RICO Bus.Disp.Guide 6360 Douglas A. HOLMBERG, Appellee, v. Rodney C. MORRISETTE and Mintex Corporation, a Minnesota corporation, Appellants. Douglas A. HOLMBERG, Appellee, v. Rodney C. MORRISETTE and Mintex Corporation, a Minnesota corporation, Appellants. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Mark R. Miller, Minneapolis, Minn., for appellants.
Joseph W. Anthony, Minneapolis, Minn., for appellee.
Before ROSS, Circuit Judge, BRIGHT, Senior Circuit Judge, and BOWMAN, Circuit Judge.
This appeal is from a judgment entered after a bench trial finding defendants Rodney C. Morrisette and Mintex Corp. (Mintex) liable for treble damages under the Organized Crime Control Act of 1970, Title IX (Racketeer Influenced and Corrupt Organizations), 18 U.S.C. Secs. 1961-1968 (as amended) (RICO), and for actual and punitive damages under two common-law counts for fraud and conversion for submitting falsified documentation to draw down a letter of credit provided by Douglas A. Holmberg, the plaintiff in this action. The District Court awarded Holmberg $375,000 in damages, $4,478 in costs, and $35,383 in attorneys' fees. We affirm the District Court's finding of liability for actual and punitive damages on the fraud and conversion claims. We reverse the finding of liability on the RICO claim and the award of attorneys' fees, and remand for a determination of the amount of damages Holmberg should recover with respect to his state law claims.
This case arose from a series of business transactions between an American manufacturer, an American exporter, and a Nigerian buyer. Mintex, a Minnesota corporation, produces wall plaques and other commemorative materials. Morrisette, a Florida resident, is president of and holds fifty percent of the shares of Mintex. Trans World Services, Inc. (Trans World) is a Minnesota corporation engaged in export trading. Typically, Trans World provided security for its purchases of goods by obtaining a letter of credit from a third party, such as plaintiff Douglas A. Holmberg in this case. Trans World would be the initial beneficiary of the letter of credit, but then would transfer it to the benefit of a domestic supplier to secure the transaction. If the buyer did not pay Trans World for the goods and Trans World in turn did not pay the supplier, the latter could use the letter of credit to obtain payment.
In September and October 1981, Mintex agreed to supply Trans World with certain commemorative plaques destined for shipment to a Nigerian importer, G.N.A. Hamzer & Co. (Hamzer). Trans World was to secure the purchase with a letter of credit, but Mintex reserved the right to accept or reject the terms of the letter of credit. In September, Holmberg agreed to furnish Trans World a letter of credit for $125,000 in exchange for a portion of Trans World's profits on its sales of the plaques. In October, Holmberg bought an irrevocable, unconditional, and transferable letter of credit naming Trans World as the beneficiary.
Trans World soon began placing orders with Mintex. By mid-December, Mintex had produced $65,232 worth of plaques that were shipped to Hamzer in Nigeria. From February 1982 through May 1982, Mintex produced $264,021 worth of goods that Trans World shipped to Wood Dale, Illinois for storage. Mintex lacked purchase orders from Trans World for $112,956 of these goods, and $71,540 of the goods were designated for RJC Enterprises, of which Morrisette was a part owner.
Holmberg's first letter of credit expired in April 1982 without being cashed. In July, Trans World requested and Holmberg provided another $125,000 letter of credit designating Trans World as the beneficiary. Trans World forwarded the letter of credit to defendants, who requested an alteration in the terms of the letter of credit. Rather than requiring an ocean bill of lading, Morrisette wanted to change the terms to "any bill of lading." The parties finally compromised on allowing either an air or ocean bill of lading. Payment on the letter of credit was predicated on shipment of the goods to Hamzer, which was completely at Trans World's discretion, and defendants could not draw down the letter of credit until a fixed time after the goods had been shipped. Trans World could decide, for whatever reason, not to ship the goods to Hamzer and not to pay Mintex, leaving Mintex without recourse against the letter of credit.
In August, Trans World agreed to transfer Holmberg's letter of credit to Mintex as beneficiary and to name Mintex as beneficiary on a $25,000 letter of credit that Gilbert Watson obtained from a Minnesota bank. In late August, Mintex sent a letter through the United States mail to Holmberg's bank in Miami, Florida requesting transfer of the letter of credit from Trans World to Mintex. Morrisette and the Miami bank had at least one telephone conversation concerning this transfer. In September, defendants sent a request via Federal Express to Holmberg's bank requesting payment of the letter of credit. The documents submitted by them indicated that $193,964 worth of plaques had been manufactured and shipped to Hamzer in October and November 1981. The bank concluded that the documents complied with the letter of credit and paid Mintex $125,000.
In fact, the documents were false and misleading. Trans World had shipped only $65,232 worth of goods to Hamzer by September 1982, and this was known to Mintex. Hamzer was a customer of Trans World, not Mintex, and thus owed Trans World for the goods shipped. Hamzer certainly did not owe Mintex the $193,964 claimed on the documents accompanying the letter of credit. Morrisette admitted at trial that the corresponding invoices designating Hamzer rather than Trans World as the buyer were not created until August or September 1982, though Mintex back-dated them to October and November 1981. Moreover, the attached air bills of lading did not correspond to the invoices, but had been altered to conceal the actual amount of goods shipped so that no one would notice the discrepancy in dollar value between the invoices and the air bills.
Mintex also drew down two other letters of credit related to the transactions at issue here. In September 1981, Peter DeJongh purchased a $25,000 letter of credit through a Minnesota bank. Mintex eventually was made the beneficiary of this letter of credit, and was entitled to draw down upon it by presenting an ocean bill of lading showing shipment of goods to Nigeria and associated invoices. In June 1982, Morrisette requested and received payment of this letter of credit in person by presenting invoices from Trans World and bills of lading. As previously noted, in August 1982, Mintex was also named the beneficiary of Watson's $25,000 letter of credit, which had been issued to Trans World in August 1981. Between April and mid-October 1982, Morrisette and Watson's bank had numerous telephone conversations and several exchanges of correspondence through the United States mail concerning Morrisette's efforts first to transfer and then to draw down Watson's letter of credit. On October 15, 1982, Morrisette presented the bank with documents showing shipment of over $25,000 in goods and received $25,000 in payment.
Concurrent with these actions, on October 9, 1982, Mintex commenced a replevin action in Illinois to recover the $264,021 worth of goods Trans World had stored in Wood Dale. 1 In its complaint, Mintex represented that it owned the goods.
In his complaint in this case, Holmberg alleged that Morrisette and Mintex had: (1) committed common-law fraud in drawing down Holmberg's letter of credit; (2) converted Holmberg's funds; (3) engaged in a pattern and practice of racketeering activity in violation of RICO; and (4) acted with willful indifference to Holmberg's rights and were therefore liable for punitive damages. He sought actual damages of $125,000 under each of the first two counts. He also claimed the same amount under the RICO count, which would be trebled under that statute to $375,000. Finally, Holmberg sought punitive damages as well as attorneys' fees, costs, and interest.
After a bench trial, the District Court concluded that Holmberg had prevailed against defendants on all four counts of the complaint. As to the common-law fraud claim, the court concluded that defendants fraudulently collected payment on Holmberg's letter of credit thereby damaging Holmberg. Holmberg v. Morrisette, No. 3-83-1383, at 23 (D.Minn. Feb. 1, 1985). The District Court similarly found that defendants' presentation of fraudulent documents to Holmberg's bank constituted a conversion of Holmberg's funds. Damages were set at $125,000 for each count plus costs, attorneys' fees, and interest. The District Court also found that defendants had acted with willful indifference to Holmberg's rights and that Holmberg was entitled to $250,000 in punitive damages.
The District Court found defendants liable under RICO for conducting a pattern of racketeering predicated on mail and wire fraud. The District Court specifically relied on defendants' having obtained payment of the Holmberg, Watson, and DeJongh letters of credit by using the United States mail to submit fraudulent documents and a telephone to make communications in connection with those transactions. On the RICO claim, the court awarded Holmberg $375,000 (treble damages) plus costs, attorneys' fees, and interest. The court then concluded that Holmberg's damages under the RICO claim subsumed his damages under the fraud, conversion, and punitive damages...
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