McCarthy v. Pacific Loan, Inc.
| Decision Date | 06 March 1986 |
| Docket Number | Civ. No. 82-0292. |
| Citation | 629 F. Supp. 1102 |
| Parties | Michael F. McCARTHY and American Resources, Ltd., Plaintiffs, v. PACIFIC LOAN, INC., and Thrift Guaranty Corporation, Defendants. PACIFIC LOAN, INC., and Thrift Guaranty Corporation of Hawaii, Defendants-Counterclaim Plaintiffs, v. Michael F. McCARTHY, American Resources, Ltd., Curtis J. Bernhardt, Carl J. Bernhardt, Robert L. Hofmann, Harold T. Okahara, Andrew F. Pollett, James M. Seegraves, Laura L.M. Wong, Daniel R. Matsukage, Nathan H. Suzuki, American Sunrise, Ltd., Castle Management Corp., dba Orion Enterprises, Christie Oil Co., Ltd., CJB Holdings, Development, Inc., Eagle River Development Co., Inc., Hawaii-Alaska Development Corp., Hawaii-Alaska Land & Cattle Co., the Norfolk Group, Ltd., Norfolk Investment Co., Ltd., Norfolk Realty, Inc., Norfolk Utilities and Development, Inc., O.R., Ltd., Oriental Rugs, Inc., PML Ltd., Pupukea Tree Farms, San Pedro Packers, Inc., Stone Oil Corporation, Transpacific Construction Consultants, Inc., Velzeyland Properties, John Does 1-50, Jane Does 1-50, Doe Partnerships 1-50, Doe Corporations 1-50, Doe Entities and Associations 1-50, and Doe Governmental Units 1-50, Counterclaim Defendants. |
| Court | U.S. District Court — District of Hawaii |
Richard J. Archer, Honolulu, Hawaii, for Pacific Loan, Inc.
Paul Mullin Ganley, Honolulu, Hawaii, for Thrift Guar. Corp.
Robert F. Miller and Linda Mei Jaress, Honolulu, Hawaii, for Thrift Guar. Corp. of Hawaii.
Dennis E.W. O'Connor, Jerrold K. Guben, Charles E. McKay, Honolulu, Hawaii, for Michael F. McCarthy.
Jay M. Fidell, Bendet, Fidell & Sakai, Honolulu, Hawaii, for Theo. H. Davies & Co., Ltd.
Boyce R. Brown, Terry Day, Honolulu, Hawaii, for Carl J. Bernhardt, Curtis J. Bernhardt, and Norfolk Inv. Co.
Nathan Suzuki, pro se.
Rogers M. Ikenaga, Honolulu, Hawaii, for Daniel R. Matsukage.
DECISION ON PACIFIC LOAN, INC.'S (COUNTERCLAIM PLAINTIFF'S) MOTION TO REINSTATE COUNT I (RICO) OF COUNTERCLAIM
On July 20, 1982, Pacific Loan, Inc. (Pacific) filed its counterclaim against Michael F. McCarthy, et al. (McCarthy) alleging, in Count I thereof, violation of Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-68 (RICO); Count II, fraud in the sale of securities, in violation of 15 U.S.C. § 78j and Rule 10b-5 promulgated thereunder, and Haw.Rev.Stat. § 485-25; and Count III, fraud and fraudulent conveyances and constructive trusts.
Thereafter followed the usual procession of Answer and Motions. A More Definite Statement was filed by Pacific on October 27, 1982 setting forth, in more particularity, the acts averred in the counterclaim, and that those acts all occurred within five years of that date and had continued from 1977 until July 22, 1981. By this court's Order of November 19, 1984, the validity of the averments of the securities act violations (Count II) was upheld.
By Decision and Order entered December 31, 1984, 600 F.Supp. 137, this court dismissed Count I of the counterclaim, the RICO Count. This dismissal was based upon Sedima, S.P.R.L., v. Imrex Company, Inc., et al., 741 F.2d 482 (2d Circuit 1984) requiring a civil RICO plaintiff to establish that a civil RICO defendant had already been convicted of certain crimes.
The Second Circuit (and, ergo, this court) was reversed in Sedima, S.P.R.L., v. Imrex Company, Inc., et al., ___ U.S. ___, 105 S.Ct. 3275, 84 L.Ed.2d 346, decided July 1, 1985. There, in brief substance, the Court held that (1) there is no requirement that a private action can proceed only against a defendant who has already been convicted of a predicate act or of a RICO violation, and (2) there is also no requirement that a plaintiff in a private action establish a "racketeering injury" as opposed to an injury resulting from the predicate acts themselves.
On March 23, 1984, in Criminal # 60148, State of Hawaii v. Michael F. McCarthy, et al., McCarthy and other defendants were indicted for what, in substance, were the same fraudulent acts charged in the federal indictment. On January 3, 1985, Judge Yim of the First Circuit Court, State of Hawaii, granted McCarthy's and Okahara's Motion to Dismiss.
On January 3, 1985, counterclaim defendants McCarthy, Matsukage, Okahara, and the two Bernhardts were indicted under RICO. On March 7, 1985, in a Superseding Indictment, Matsukage pleaded guilty to Counts 1 (Conspiracy), 60 (Mail Fraud), and 73 (Wire Fraud).
On June 25, 1985, the case of Carl Bernhardt was severed, and on July 25, 1985, the case of Curtis Bernhardt was likewise severed from the McCarthy/Okahara trial. Trial for both Bernhardts has been scheduled for May 20, 1986.
On July 2, 1985, following defendants' Motion to Dismiss the indictment, Magistrate Gedan reported and recommended that Counts 2 to 30 of the superseding indictment (Criminal # 85-00132) should be dismissed. Those counts set forth 25 identifiable mailings by home owners of mortgage payment checks. The magistrate's report and recommendation was affirmed by District Judge Craig on July 29, 1985. The government appealed that ruling. (The appeal has not yet been decided.)
The criminal trial of McCarthy and Okahara started on July 31, 1985. On September 26, 1985, the government rested, and defendants McCarthy and Okahara moved for a judgment of acquittal. On September 30, 1985, Judge Craig acquitted McCarthy and Okahara of all charges in Count 1 (Conspiracy) and Counts 31 thru 74 (Mail Fraud and Wire Fraud), as well as all charges of aiding and abetting the commission of conspiracy, mail fraud, or wire fraud. The government filed Notice of Appeal. (This appeal has not yet been heard.)
On November 15, 1985, Pacific moved that Count I, the RICO Count, should be reinstated as to all counterclaim defendants except American Resources, Ltd., Development, Inc., and Eagle River Development Co., Inc.
On December 17, 1985, McCarthy filed an Affidavit in Opposition to the motion claiming that because Judge Yim, Magistrate Gedan, and Judge Craig had dismissed all of the charges against them, ergo, neither he nor Okahara engaged in "conduct that is chargeable or indictable"; that the indictments returned against him and Okahara "were improper and without factual basis".
This was followed by a December 20, 1985 letter to this court from Pacific's attorney, Archer, anticipating argument from McCarthy that the securities acts violations were not indictable because barred by the statute of limitations, maintaining that under United States v. Jensen, 608 F.2d 1349, 1355-56 (10th Cir.1979), the securities act violations set forth in pp. 17 and 18(a), 40(a), 40(b), 43, 44, and 45 were indictable even in 1985.
On December 30, 1985, McCarthy filed a Supplemental Memorandum in Opposition to Pacific's Motion to Reinstate Count I of the Counterclaim. McCarthy argued that the judgment of acquittal on all charges of conspiracy, mail fraud, and wire fraud in Federal Criminal # 85-00132, and the dismissal of state charges in # 60148, supra, this "disposed of the issue of conspiracy, mail fraud, and wire fraud as predicate acts." McCarthy maintained that neither he nor Okahara can now "be indicted for these alleged offenses and, therefore, all conspiracy, mail fraud, and wire fraud cannot be a basis" for the RICO allegations against these two. McCarthy again argued that the five-year statute of limitations set out in 18 U.S.C. § 3282 is applicable to securities fraud prosecution.
THE CIVIL STATUTE OF LIMITATIONS PROBLEM.
McCarthy also maintains that H.R.S. 657-11 bars a civil RICO action "at this late date". McCarthy correctly points out that RICO does not contain a limitations period, and the most closely analogous state statute of limitations therefore applies, citing Compton v. Ide, 732 F.2d 1429 (9th Cir.1984).
H.R.S. 657-11 reads:
Whenever any federal statute provides for imposition of a civil penalty or liquidated damages or imposes a new liability or enlarges any existing liability and the statute does not specify the period within which the suit to recover ... may be brought, the suit, if brought in the state court, shall be commenced within one year from the date the cause of action arises or be thereafter barred.
McCarthy argues that since Pacific alleged "indictable acts which occurred on June 22, 1981" or before, the one-year statute of limitations ran out on June 22, 1982. Since the counterclaim was filed on July 19, 1982, therefore, all RICO allegations are time-barred. Moreover, argues McCarthy, Pacific had full access to all records and was fully aware of the underlying facts involving the charges certainly by the time they filed their complaint in Civil # 675851, Pacific Loan, et al., v. Bernhardt, et al., in the First Circuit Court of the State of Hawaii in October 1981. McCarthy further maintains that the last overt act alleged appeared in Pacific's Counterclaim paragraph 40 as of "December 31, 1979", and the last overt act in the More Definite Statement occurred on June 22, 1981, ergo, maintains McCarthy, under 657-11 all RICO charges are barred as a matter of law.
In its reply memorandum of January 10, 1986, Pacific maintained:
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