John L. Motley Associates, Inc. v. Rumbaugh
| Decision Date | 01 September 1989 |
| Docket Number | Misc. No. 86-73. |
| Citation | 104 BR 683 |
| Parties | JOHN L. MOTLEY ASSOCIATES, INC. v. Robert RUMBAUGH, Norman H. Beck, Jr., and Beck Rumbaugh Associates, Inc. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
James Scarpone, Scarpone & Edelson, Newark, N.J., for debtor.
Paul R. DeFilippo, Crummy, Del Deo, Dolan, Griffinger & Vecchione, Newark, N.J., for John L. Motley Assocs. Inc.
Fred Lowenschuss, Burlington, N.J., for Robert Rumbaugh.
Paul J. Winterhalter, Philadelphia, Pa., for Anthony Barone, Trustee.
Joseph W. Chandler by Paul I. Guest, Jr., King of Prussia, Pa., for defendant.
Pending before the court is John L. Motley's Amended Motion to Dismiss RICO Claim and the Answer on Behalf of Robert Rumbaugh to Amended Motion of John L. Motley to Dismiss RICO Claim. For the reasons which follow, Motley's amended motion to dismiss RICO claim will be granted. Additionally, the RICO claim pending against Norman Beck is also dismissed. Dismissal of the RICO claim pending against both these individuals closes this case and concludes this litigation.
On June 30, 1976, Norman H. Beck, Jr. ("Beck") and Robert Rumbaugh ("Rumbaugh") incorporated Beck-Rumbaugh Associates ("the Debtor Corporation") in the Commonwealth of Pennsylvania to sell office equipment and supplies as manufacturers' representatives. Beck owned 51% of the shares of the corporation and was Chairman of the Board, President and Treasurer. Rumbaugh owned 49% of the shares of the company and was Vice-president and Secretary.
On June 30, 1979, Beck agreed to purchase Rumbaugh's interest in the Debtor Corporation. Rumbaugh subsequently alleged corporate mismanagement, improper and wrongful actions and breach of the purchase agreement by Beck. (Civil Action No. 79-3849, assigned to the Honorable John B. Hannum). A jury verdict was returned in that case on January 7, 1983. In response to interrogatories entitled "Plaintiff's Claim for Damages in the Nature of Payment for his Interest in the Corporation," the jury determined that Rumbaugh voluntarily ceased to be active in the corporation on June 30, 1979. There was an agreement that Beck would purchase Rumbaugh's shares in the corporation, Beck unilaterally breached that agreement and Rumbaugh was entitled to $135,109 from Beck personally for the breach of that agreement. The jury also determined that Rumbaugh was entitled to additional damages from Beck personally in the amount of $5,000 and $28,000 from the Debtor Corporation. Judgment was entered in favor of Rumbaugh and against Beck in the amounts of $135,109 and $5,000 and against the Debtor Corporation in the amount of $28,000 less a set-off in favor of the Debtor Corporation and against Rumbaugh in the amount of $8,154.
Rumbaugh v. Beck, No. 79-3849 (E.D.Pa. June 1, 1983) (Hannum J.), aff'd. mem., No. 87-1509, Slip Op. (3d Cir. February 25, 1987). The award entitled Rumbaugh to his interest in the corporation as of June 30, 1979, which was the date of the sales agreement. The district court determined that Rumbaugh retained legal ownership of 49% of the shares in the corporation until satisfaction of the judgment, but that Beck acquired equitable ownership as of the date of the agreement. Rumbaugh has yet to execute on this final judgment, but it is clear from the trial court decision, affirmed on appeal, that he will have to relinquish legal, as well as equitable, title to the shares upon satisfaction of the judgment.
John L. Motley Associates, Inc. ("Motley Associates") and John L. Motley ("Motley") had entered into an oral agreement in 1981 with Beck, on behalf of the Debtor Corporation, to serve as a manufacturer's representative for manufacturers then represented by the Debtor Corporation. Pursuant to that agreement, when Motley made sales to certain prior customers of the debtor corporation, a percentage of the commissions derived from those sales were to be paid to the Debtor Corporation on a decreasing downward scale over a five year period. Motley was performing under that agreement while Beck and Rumbaugh litigated their respective interests in the Debtor Corporation in the United States District Court for the Eastern District of Pennsylvania before the Honorable John B. Hannum; Rumbaugh had already ceased his activity with the Debtor Corporation. At first, commissions were remitted by manufacturers directly to the Debtor Corporation, but later manufacturers sent commissions earned directly to Motley. Rumbaugh, individually and as a shareholder, claimed the commissions on the ground that Motley and Beck had conspired to waste the assets of the Debtor Corporation. The Debtor Corporation claimed the commissions under the oral contract between Motley and Beck. In response to these competing claims, Motley deposited the commissions with the District Court of New Jersey and commenced an interpleader action in April, 1983.
On March 13, 1985, the Debtor Corporation filed a voluntary Chapter 7 petition in the Eastern District of Pennsylvania. The trustee removed the interpleader action to the Bankruptcy Court for the District of New Jersey. The action was then transferred to the United States Bankruptcy Court for the Eastern District of Pennsylvania. This court withdrew the interpleader action, in connection with appeals from decisions of the bankruptcy court. In a Memorandum and Order entered February 27, 1989, 97 B.R. 182, this court determined that the commission funds were an asset of the estate of the Debtor Corporation and should be distributed in the bankruptcy proceedings. This court held that Rumbaugh did not have standing to assert claims for the conversion of funds of the Debtor Corporation because such an action was derivative and all derivative actions passed to the trustee upon the filing of the bankruptcy petition.
Only RICO claims against Motley and Beck, asserted by Rumbaugh as cross-claims in his May 22, 1986 answer to the amended complaint in interpleader, now remain. Pursuant to an Order of this court dated February 27, 1989, Rumbaugh filed a RICO Case Statement. Motley has filed a timely motion to dismiss the RICO claim against him on grounds of lack of specificity, failure to make out a cause of action, estoppel, and lack of standing. Since Rumbaugh does not have standing to pursue RICO claims against either Beck or Motley, the RICO cross-claims will be dismissed.
In deciding a motion to dismiss, the allegations of the complaint and all reasonable inferences drawn from those allegations must be accepted as true and viewed in the light most favorable to the non-moving party. Dismissal is warranted only if the non-moving party can prove no set of facts in support of his claim that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Sturm v. Clark, 835 F.2d 1009, 1011 (3d Cir.1987).
Rumbaugh asserts that the oral contract between Motley and Beck on behalf of the Debtor Corporation was a conspiracy to turn over the assets of the Debtor Corporation to Motley in order to dissipate the corporate assets and deprive Rumbaugh of his interest in them. The alleged predicate acts are mail and wire fraud by use of the mail and telephone to enter into the contract and to implement the conspiracy by directing manufacturers to make payments directly to Motley, not to the Debtor Corporation.
Rumbaugh must have standing to assert these RICO claims. In a private civil RICO action, the plaintiff must allege and prove that he has been "injured in his business or property by reason of a RICO violation." 18 U.S.C. § 1964(c). The Supreme Court has stated that a "plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985); Keystone Ins. Co. v. Houghton, 863 F.2d 1125, 1133 (3d Cir. 1988). In this instance, Rumbaugh's standing would be derived from either his status as a debtor of the corporation or a shareholder.
Following the jury verdict in Judge Hannum's case, judgment was entered in favor of Rumbaugh and against the Debtor Corporation in the amount of $28,000 less an $8,154 set-off. The amount the Debtor Corporation owed Rumbaugh was decreased subsequently by garnishment of certain sums reduction of the bill of costs against the Debtor Corporation. See Scholl Opinion, August 4, 1989, 103 B.R. 628, 631 n. 1. The total amount due Rumbaugh from the Debtor Corporation is $12,397.81, plus interest. See Scholl Opinion, August 4, 1989, 103 B.R. p. 631. Rumbaugh's debt has a first priority in the bankruptcy distribution of the assets of the Debtor Corporation; the net balance available for distribution is $140,476.64. It is clear that the money the Debtor Corporation owes Rumbaugh will be paid in full with including interest.
Since the Debtor Corporation's debt to Rumbaugh will be fully satisfied, Rumbaugh has no standing as a corporation creditor to assert a RICO action alleging dissipation of the corporate assets. If there has been dissipation, it has not harmed Rumbaugh in either his business or property; he will receive all money due him from the corporation in the distribution of the Debtor Corporation's bankrupt estate. As harm to business or property is a prerequisite to a RICO violation,...
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