Int'l Floor Crafts Inc v. Dziemit
| Decision Date | 21 April 2011 |
| Docket Number | No. 09-1555,No. 09-2349,No. 09-1556,09-1555,09-1556,09-2349 |
| Parties | INTERNATIONAL FLOOR CRAFTS, INC., Plaintiff, Appellee/Cross-Appellant, v. JANE DZIEMIT, Defendant, Appellant/Cross-Appellee, DAVID W. ADAMS; TYRONE WILLIAMS; KEVIN BRITTO; RONALD E. MITCHELL, Individually and d/b/a Mansfield Rug Company, a/k/a Mansfield Rug Department, a/k/a Remco; MICHAEL E. BROWN, Individually and d/b/a Dalton Padding, d/b/a Empire Weavers; AGATHA ESPOSITO; DONALD SHOOP; CHINESE CARPET CENTER, INC., d/b/a CCC International; JOHN D. SUN; DAVID D. SUN; PAUL SUN, Defendants. |
| Court | U.S. Court of Appeals — First Circuit |
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before Torruella, Stahl and Howard, Circuit Judges.
Isaac H. Peres for appellant/cross-appellee Dziemit.
Paul J. Klehm, with whom Benjamin L. Falkner and Krasnoo Klehm LLP were on brief, for appellee/cross-appellant International Floor Crafts, Inc.
STAHL, Circuit Judge. This trio of related appeals arises from a 2005 civil action brought by International Floor Crafts, Inc. ("IFC") for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and various Massachusetts state laws after IFC discovered a multi-million dollar fraudulent scheme being perpetrated against it by numerous individuals and entities. By mid-2008, only two defendants remained in the suit — David Adams, a former employee of IFC, and Jane Dziemit, an outside business woman. After a joint five-day trial, the jury returned a verdict against both Adams and Dziemit.
There are three appellate issues before the court, which involve only Dziemit and IFC. Dziemit argues that the denial of her motion for judgment as a matter of law was in error and that the district court's jury instruction on common law fraud was incorrect. IFC cross-appeals with respect to one state law claim it brought under the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A ("Chapter 93A"), on which the district court refused to enter judgment. Lastly, Dziemit separately appeals the district court's imposition of an appeal bond for $10,000. For the following reasons, we affirm the district court's judgment against Dziemit and its imposition of the bond, and, at IFC's request, we decline to rule on the Chapter 93A claim.
We recite the facts in the light most favorable to the jury verdict. Anaya-Burgos v. Lasalvia-Prisco, 607 F.3d 269, 270 n.1 (1st Cir. 2010). Building 19, Inc. ("Building 19") is a company that operates fourteen retail discount stores throughout the New England area selling a wide variety of consumer products. IFC manages the rug department of Building 19, and it is responsible for supplying Building 19's flooring inventory, which consists mostly of surplus and salvage oriental rugs, indoor and outdoor rugs, remnants, padding, and wood flooring.
Because the scheme at issue involved the exploitation of IFC's business practices, we summarize briefly IFC's procedures for buying and selling rugs. Typically, IFC buyers negotiate with outside vendors to purchase merchandise for retail sale. Upon placing an order with a vendor, the IFC buyer creates a purchase order detailing the product bought, the price of the product, and the outside vendor's information. The buyer then provides copies of this purchase order to the vendor, an IFC warehouse, and IFC's accounts payable department.
After receiving a copy of the purchase order, the vendor sends IFC an invoice and delivers the goods to the IFC warehouse. An IFC receiver accepts the product, and a supervisor at the warehouse completes a receiving document termed a "key-rec." The key-rec details the merchandise received, and the supervisor is required to initial the document after having verified the contents of the delivery. Once the key-rec is complete, it is sent to IFC's accounts payable department. The accounts payable department cross-checks the corresponding purchase order, invoice, and key-rec. If personnel see no discrepancies in the paperwork, an accounts payable manager issues payment to the vendor.
Starting sometime in the mid-1990s and lasting until April 2005, Adams and co-conspirator Kevin Britto devised and managed a fraudulent scheme that duped IFC into paying out millions of dollars to various vendors based on fabricated invoices. As IFC buyers, Adams and Britto prepared purchase orders for partially or completely fake merchandise shipments, recording on the orders an exaggerated amount of items purchased. Britto communicated these fake purchases to Tyrone Williams, another IFC employee and the supervisor of IFC's largest warehouse. Williams, in turn, completed fraudulent key-recs to match the fraudulent purchase orders.
Various outside vendors were brought into the scheme, and some of these vendors were sham operations. These outside vendors would send invoices to IFC that matched the phony purchase orders and key-recs, allowing the scheme to continue undetected by the accounts payable department. Adams directed the vendors to charge a specific amount on its invoices, and when IFC's accounts payable department issued a check based on that amount, the vendors would distribute approximately seventy-five percent of the ill-gotten gains to Adams, keeping the remainder for themselves.
Chinese Carpet Center, Inc. ("CCC") was the primary vendor that colluded with Adams and Britto. David Sun, CCC's former treasurer, testified at trial about the company's knowing participation, and he detailed the scheme's inner-workings. He explained that CCC was consistently required to advance to Adams large sums of money via cash, check, and wire transfers. In turn, CCC would bill IFC for short or nonexistent shipments. When CCC received payment from IFC, it was paid back the initially loaned amount along with a profit, which was shared between CCC and Adams. Sun explained that this loan system kept CCC in the scheme and made it difficult to disengage, lest CCC not recoup the money it had advanced.
Prior to her involvement in the scheme, Dziemit worked as a mortgage lender associated with various companies, many of which were owned and operated by her boyfriend, Tony Maresca. Dziemit's primary activity was the completion of loan paperwork for the companies, and she worked out of her home in Connecticut. At times, Dziemit would also make loans to third parties, drawing upon Maresca's mortgage companies or her own personal accounts to supply the funds. Each time Dziemit completed a loan, she executed a mortgage and a promissory note, and she profited from the loan based on the interest that it accrued.
Maresca was a long-time friend of Ronald Mitchell. Mitchell owned and operated a carpet underlay supply business known as Remco, and later, as Mansfield Rug, which sold padding. At some point in his career, Mitchell, doing business as Remco, sold padding to retail operations that he obtained from legitimate businesses. His company had no employees other than himself. In 1999 or 2000, Dziemit began working with Mitchell as part of Remco, and she became a partner of the company for a few years. Around this time, Dziemit and Mitchell, along with Maresca, met with Adams at a Building 19 store to initiate a business relationship.
Mitchell and Dziemit testified at trial about their dealings with Adams and the transactions that were involved. According to their testimony, Adams would communicate to Mitchell a specific amount of money that Mitchell, d/b/a Remco, was to lend to Adams, purportedly so that Adams could purchase rugs. Then, Adams would send Mitchell an IFC purchase order that included a description of product ostensibly being supplied by Remco and the amount that Remco was to charge IFC on an eventual invoice. The invoice amount was always greater than the loan amount, and the two figures in no way corresponded. Mitchell would then fax the purchase order to Dziemit and communicate to her the amount of the loan to Adams.
Dziemit, acting in her lending capacity, would lend to Mitchell the money to be advanced to Adams. Except for the first loan executed, Dziemit did not secure any notes or mortgages evidencing or securing these loans. Then, switching hats and acting as a Remco partner, Dziemit would advance the money to Adams, or at times, to Britto. Many of these advances were completed via wire transfers. Although Mitchell and Dziemit claimed that Adams used this advanced money to buy the merchandise that was listed on the purchase order and that was ostensibly being supplied by Remco, neither of them ever saw any product that was bought or shipped, and they never sought to visit a warehouse. Beyond the purchase order, there was no documentation that the product existed.
Approximately two or three weeks after Dziemit advanced money to Adams, Adams would alert Remco to submit an invoice to IFC. Dziemit drafted the bulk of the invoices and either she or Mitchell would mail them. Upon receipt of the invoice, IFC would send a check to Dziemit's post office box, or, at least one time, directly to Dziemit's home. Dziemit would endorse the check from IFC and deposit it into the account from which she initially borrowed the funds, which could have been her personal account or the account of one of Maresca's companies; Dziemit did not keep good records, and many of the transactions were recorded as handwritten notations on various papers. Dziemit would then send Adams a portion of the profit and share the remainder with Mitchell. At no time throughout her involvement was Dziemit ever actually engaged in the sale of padding, Remco's purported business.
When Dziemit testified at trial, she walked the jury through a sample transaction, using a $25,000 loan she made to Mitchell and then advanced to Adams on November 18, 1999. On January 19, 2000, approximately two months later,...
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