PHILADELPHIA RESERVE SUPPLY v. Nowalk & Associates, Civ. A. No. 91-0449.

Decision Date27 September 1994
Docket NumberCiv. A. No. 91-0449.
Citation864 F. Supp. 1456
PartiesPHILADELPHIA RESERVE SUPPLY COMPANY, Plaintiff, v. NOWALK & ASSOCIATES, INC., et al., Defendants.
CourtU.S. District Court — Eastern District of Pennsylvania

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Steven J. Fram, Philadelphia, PA, for plaintiff.

Stephen J. Mathes, Philadelphia, PA, Joseph H. Kenney, Ralph R. Smith, 3rd, Cherry Hill, NJ, for defendants.

MEMORANDUM

LOWELL A. REED, Jr., District Judge.

Plaintiff Philadelphia Reserve Supply Company ("PRSCO") brought this action against defendants Nowalk & Associates, Inc., Joseph W. Johnson, Richard G. Nowalk, Michael A. Hudy, John Tedesco, Barry Weshnak, Jeffrey Walsh, William Greenberg, Peter H. Wegener, Joseph Tomasek, and Bathgate, Wegener, Wouters and Neumann, P.C. claiming that they engaged in a scheme to defraud plaintiff which violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-68 ("federal RICO"), violated the New Jersey Racketeer Influenced and Corrupt Organizations statute, N.J.Rev.Stat. §§ 2C:41-1 to -6.2 ("New Jersey RICO"), and gave rise to various other state law claims. In a memorandum and order dated August 25, 1992 ("Memorandum"), I dismissed the claims based on federal RICO and New Jersey RICO. Document No. 62. This court has jurisdiction over this case pursuant to 28 U.S.C. § 1332 as the parties are of diverse citizenship and the amount in controversy exceeds $50,000 exclusive of interest and costs.

Currently before me is the motion of plaintiff for reconsideration and reinstatement of its claims under New Jersey RICO. Document No. 94. For the following reasons, I will reconsider my decision to dismiss the claims based on New Jersey RICO, and I will grant the motion for reinstatement as to Counts Six through Ten of the second amended complaint (Document No. 29).1

I. PROCEDURAL HISTORY

The procedural history up until the date of the Memorandum was detailed therein and will not be repeated here. See Memorandum, at 2-3. Since that time, the defendants have answered the third amended complaint, and the parties have proceeded with discovery. U.S. Magistrate Judge M. Faith Angell has overseen discovery and other pretrial matters since August of 1993. Currently pending before Judge Angell are motions of the defendants for summary judgment.2

II. FACTUAL BACKGROUND3

The factual background of this case was detailed in the previous Memorandum and so will be summarized only briefly here. See Memorandum, at 3-7. Plaintiff is a building materials buying cooperative comprised of members who are building material resellers. The defendants are former directors, accountants and lawyers for Johnson Home Centers of New Jersey, Inc. ("JHC"). Plaintiff states that defendants engaged in a "bust-out" scheme to defraud plaintiff and other creditors in order to save JHC from insolvency and to salvage the defendants' investments.4 JHC was allowed to become a purchasing member of PRSCO after the defendants misrepresented JHC's financial status. For several months after JHC became a member, JHC bought materials through PRSCO and promptly paid the bills for those materials in order to further convince PRSCO that JHC was financially sound. Then the Board of Directors of JHC ordered the purchase of as much inventory as possible from PRSCO and other suppliers, with no intention of paying for it. These actions were taken in order to force JHC's creditors, including PRSCO, to settle their claims against JHC for a fraction of their true value in the face of JHC's potential bankruptcy.

Plaintiff also contends that the defendants took a number of actions, including lying at depositions and intimidating PRSCO officers, to cover up their involvement in the scheme.

III. DISCUSSION
A. Reconsideration

A motion to dismiss which is only partially granted does not constitute a final judgment, unless expressly entered as such. Fed.R.Civ.P. 54(b). As a non-final judgment, it is "subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties." Id. In addition, "so long as a district court has jurisdiction over a case, the district court possesses inherent power over interlocutory orders, and can reconsider them when it is consonant with justice to do so." United States v. Jerry, 487 F.2d 600, 605 (3d Cir.1973); see also Rottmund v. Continental Assur. Co., 813 F.Supp. 1104, 1107 (E.D.Pa.1992).5

I rested the dismissal of the New Jersey RICO claims on a legal finding that the definition of a "pattern of racketeering activity" under New Jersey RICO is the same as the definition of a pattern of racketeering activity under federal RICO. Under federal RICO, there must be continuity for a pattern of racketeering activity to exist. Continuity means that the alleged racketeering scheme must be either open-ended, that is threatening continuing racketeering activity, or close-ended but lasting a substantial period of time. See H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 241, 109 S.Ct. 2893, 2901-02, 106 L.Ed.2d 195 (1989). I then found that plaintiff had sufficiently alleged, at most, a close-ended scheme lasting only seven months, which did not constitute a long enough period of time so as to satisfy the continuity requirement.

At the time of my decision, neither the Supreme Court of New Jersey nor any intermediate appellate courts in New Jersey had ruled on whether, under New Jersey RICO, continuity was required for a "pattern" to exist. The motion of plaintiff for reconsideration is based on a recent decision by the Superior Court of New Jersey, Appellate Division. State v. Ball, 268 N.J.Super. 72, 632 A.2d 1222 (App.Div.1993), certification granted sub nom. State v. Bassi, 135 N.J. 304, 639 A.2d 304, certification granted sub nom. State v. Harvan, 135 N.J. 304, 639 A.2d 304, certification granted sub nom. State v. Hurtuk, 135 N.J. 305, 639 A.2d 304 (1994). In Ball, the appellate court found that the definition of pattern under New Jersey RICO, unlike under federal RICO, does not include a continuity element. Id. 632 A.2d at 1257-59.

When a federal court is applying state law without the benefit of a decision by the highest court of a state, lower state court decisions are not controlling; however, an intermediate appellate state court decision "is a datum for ascertaining state law which is not to be disregarded by a federal court." West v. A.T. & T. Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940). Given the significant addition that the Ball case makes to the sparse legal landscape on the issue of whether a New Jersey RICO pattern requires continuity, I will reconsider my decision to dismiss the New Jersey RICO claims.6

B. New Jersey RICO's "Pattern of Racketeering Activity" and Continuity
1. Weight of an Intermediate State Court Decision

When the highest court of a state has not ruled on an issue of state law, a federal court is required to predict how that court would rule. Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782-83, 18 L.Ed.2d 886 (1967). The federal court may consider a range of information, including "relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 663 (3d Cir.), cert. denied, 449 U.S. 976, 101 S.Ct. 387, 66 L.Ed.2d 237 (1980). While the decisions of intermediate courts are but one datum to consider, they are "`indicia of how the state's highest court might decide' the issue." McGowan v. University of Scranton, 759 F.2d 287, 291 (3d Cir.1985) (quoting Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1167 (3d Cir.1981)). I can only disregard such decisions if I am "convinced by other persuasive data that the highest court of the state would decided otherwise." West, supra, 311 U.S. at 237, 61 S.Ct. at 183.7

2. The State v. Ball Decision

The court in Ball found that New Jersey RICO, unlike its federal counterpart, does not require "continuity" in order for a "pattern of racketeering activity" to exist. 632 A.2d at 1257-59. This holding is contrary to the general rule that it is "appropriate to seek guidance from" federal decisions interpreting federal RICO because New Jersey RICO borrows the structure, purpose and remedies of federal RICO. Ball, supra, 632 A.2d at 1235; see also State v. Ramseur, 106 N.J. 123, 524 A.2d 188, 228 (1987) (noting that when the New Jersey legislature adopts complex statutes modelled after existing statutes in other jurisdictions, it also generally adopts the case law interpreting those statutes). In several other areas, New Jersey courts have followed federal case law. See e.g., State v. New Jersey Trade Waste Ass'n, 96 N.J. 8, 472 A.2d 1050, 1056 (1984) (antitrust); Peper v. Princeton Univ. Bd. of Trustees, 77 N.J. 55, 389 A.2d 465, 478 (1978) (employment discrimination). In the antitrust area, following federal case law is required by statute. See N.J.Rev.Stat. § 56:918; New Jersey Trade Waste Ass'n, 472 A.2d at 1056. But in the employment discrimination area, while Supreme Court of New Jersey made it clear that it was not bound to accept federal case law, it chose to do so because "where these federal standards are useful and fair, it is in the best interests of everyone concerned to have some uniformity in the law." Peper, 389 A.2d at 478. Therefore, for the holding in Ball to be an accurate prediction of what the Supreme Court of New Jersey would decide on this issue, there must be a reasoned basis for departing from federal case law.

The court in Ball based its holding on the New Jersey RICO statute's language, its legislative history, the state of federal RICO case law at the time the New Jersey RICO statute became law, and other cases interpreting similar state RICO s...

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