State Farm Fire and Cas. Co. v. Estate of Caton

• Decision Date: 09 June 1982
• Docket Number: No. S 81-178.,S 81-178.
• Citation: 540 F. Supp. 673
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff, v. ESTATE OF Douglas D. CATON, Deceased, and James Caton, Defendant.
• Court: U.S. District Court — Northern District of Indiana

540 F. Supp. 673

STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff, v. ESTATE OF Douglas D. CATON, Deceased, and James Caton, Defendant.

No. S 81-178.

United States District Court, N. D. Indiana, South Bend Division.

June 9, 1982.

Thomas H. Singer, South Bend, Ind., for plaintiff.

James F. Groves, Gerald Sakaguchi, South Bend, Ind., for defendant.

MEMORANDUM AND ORDER

SHARP, Chief Judge.

This cause is before the Court pursuant to the Organized Crime Control Act of 1970, 18 U.S.C., § 1961 et seq., (hereinafter RICO), specifically section 1964(c) which creates a civil cause of action. This memorandum disposes of all pending motions to dismiss and for summary judgment and contains all necessary findings of fact and conclusions of law so as to comport with Federal Rules of Civil Procedure 56.

FACTUAL BACKGROUND

On March 13, 1981 Douglas D. Caton, James Caton, Marion Comadoll, Cheryl Melton and Boyd Howard were indicted in this Court under 18 U.S.C., § 1962(c) and (d) (RICO), 18 U.S.C., § 1341 (mail fraud), I.C. § 35-16-1-1 (arson), 18 U.S.C., § 1951 (extortion), and 26 U.S.C. § 7206(1) (income tax evasion). The factual underpinnings alleged an elaborate arson-for-profit scheme whereby fires were set, and fraudulent insurance claims and fraudulent repair estimates and claims, were filed with the respective insurance companies. The perpetrators allegedly received approximately $277,000.00 in fraudulent settlements.

On June 4, 1981 Douglas D. Caton, James Caton, Cheryl Melton and Marion Comadoll were found guilty by a jury in this Court of violating 18 U.S.C., § 1962(c) and (d) and 18 U.S.C., § 1341. Boyd Howard was found not guilty. These defendants were sentenced accordingly on July 17, 1981. Douglas D. Caton posted bond and was released pending appeal.

On June 5, 1981 State Farm Fire and Casualty Insurance Company (hereinafter State Farm) filed a civil action under 18 U.S.C. § 1964(c) requesting treble damages in the approximate amount of $46,000.00. State Farm had been the victim of a fraudulent settlement claim in conjunction with the arson of a house located at 306 E. Fox Street, South Bend, Indiana. The complaint named Douglas D. Caton, James Caton, Marion Comadoll, Cheryl Melton and Boyd Howard as defendants.

On June 16, 1981 Douglas D. Caton filed a separate interpleader action pursuant to Federal Rules of Civil Procedure 22 against ten insurance companies, including State Farm. Caton established a restitutionary fund in the amount of his base liability, exclusive of treble damages, costs, and attorney fees. On June 20, 1981 Caton filed an answer to State Farm's complaint alleging that the interpleader action barred State Farm's claim. All of the defendants in the interpleader action filed answers and counterclaims for full relief under 18 U.S.C., § 1964(c) (i.e. treble damages, interest, costs and attorney fees). Seven of the insurance companies named in the Caton interpleader action moved to intervene in State Farm v. Caton, Civil number S 81-178, and said motions were granted. Then on November 24, 1981, the Court, on its own motion, consolidated both suits, numbers S 81-178 and S 81-220 for all further proceedings and trial.

On November 21, 1981 Douglas D. Caton was found murdered in Las Vegas, Nevada, with a single bullet through the back of his head. A memorandum and suggestion of death were subsequently filed and the Court ordered the Estate of Douglas D. Caton substituted for Douglas D. Caton in these consolidated actions on December 21, 1981.

On or about December 16, 1981, counsel for Douglas D. Caton filed a motion in the United States Court of Appeals for the Seventh Circuit seeking abatement of the proceedings in the appeal of the underlying criminal conviction. The Seventh Circuit Court of Appeals granted said motion on January 21, 1982, and ordered all proceedings abated ab initio and dismissed the appeal.

On February 22, 1982 a default judgment was granted in favor of State Farm as to Marion Comadoll and Boyd Howard and denied as to Cheryl Melton and James Caton. On February 24, 1982 State Farm filed a motion for severance of its claims from those of the other insurers due to the likely settlement of claims by the other defendant insurance companies. The motion for severance was granted on March 1, 1982. The case of State Farm v. the Estate of Douglas D. Caton, et al. would proceed under the cause number S 81-178 and the remaining parties would proceed in the original interpleader action under cause number S 81-220.

It is in this posture that the Court now considers the issues raised by the pending motions.

I.

The first question to be answered is whether a civil RICO action can be brought under 1964(c) when it is not supported by a criminal conviction. Defendant argued to the Court, both in his brief and during oral argument, that one consequence of the abatement of his criminal prosecution was that this civil action could no longer be maintained, since a civil action could only be brought against a person previously convicted in a criminal prosecution of a violation of RICO. Plaintiff contends that defendant has misconceived the nature of a RICO civil action.

"In determining the scope of ... RICO, it is proper to look first to its language." United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981). The "literal meaning of the words employed," Flora v. United States, 357 U.S. 63, 65, 78 S.Ct. 1079, 1081, 2 L.Ed.2d 1165 (1958), seem clear enough. Section 1964(c) refers to a "violation" of the standards of Section 1962, not to the criminal penalties of Section 1963. Section 1962 says that acts in violation of it are "unlawful," not criminal. Criminal and civil sanctions are applied to violations of Section 1962 by Section 1963 (criminal) and Section 1964 (civil). Defendant has misread the statute. There is no reason to "depart from and limit the statutory language." United States v. Turkette, supra, 101 S.Ct. at 2527 (apropos of scope of "enterprise").

In United States v. Cappetto, 502 F.2d 1351 (7th Cir. 1974), cert. den., 420 U.S. 925, 95 S.Ct. 1121, 43 L.Ed.2d 395 (1975), the government began an injunctive action against the defendant under Section 1964(a) and (b). Section 1964(a) grants civil jurisdiction to federal courts to prevent and restrain "violation of 1962"; the government in Section 1964(b) is explicitly authorized to "institute proceedings" under Section 1964(a). No prior criminal conviction had been obtained. The court observed:

Acts which may be prohibited by Congress may be made subject to both criminal and civil proceedings, and the prosecuting arm of the government may be authorized to elect whether to bring a civil or criminal action, or both. A civil proceeding to enforce those acts is not rendered criminal in character by the fact that the acts are also punishable as crimes. 502 F.2d at 1357.

In Farmers Bank of State of Delaware v. Bell Mortgage, 452 F.Supp. 1278 (D.C.Del. 1978), a private civil damage action was brought under Section 1964. The defendant objected that he had "not been convicted. ..." 452 F.Supp. at 1279. The court held:

Section 1964(c) ... does not condition ... a cause of action in any way upon a previous conviction under the criminal provisions of the statute. It is only necessary that the plaintiff prove elements of the Act by a preponderance of the evidence in order to be awarded damages in a civil action. 452 F.Supp. at 1280.

The court cited Cappetto, supra, as authority for its holding. Farmers Bank has, moreover, been followed in Heinold Commodities, Inc. v. McCarty, 513 F.Supp. 311, 313-314 (N.D.Ill.1979) (Judge Decker), and Parness v. Heinold Commodities, Inc., 487 F.Supp. 645, 647 (N.D.Ill.1980) (Judge Bua).

At various times defendants have argued that plaintiff's complaint does not state a cause of action. The "accepted rule is that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1975). To determine the scope of RICO, it is, as noted above, first necessary to examine its "language." United States v. Turkette, supra. Section 1964(c) authorizes "a person injured in his business or property by reason of a violation of Section 1962 ..." to "sue ...." Recovery includes treble damages. Id. "Person" is defined to include "any ... entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1961(3). The plaintiff, State Farm, is, of course, such an entity. The money allegedly obtained by the defendant through his acts of arson, fraud and racketeering "injured" State Farm both in its insurance "business" and its "property". At the very least, its "monetary" loss constituted "injury" under Section 1964(c). Section 1962 is, moreover, violated by "any person" "associated with any enterprise ... the activities of which affect ... commerce, conducting ... the enterprise's affairs through a pattern of racketeering activity ...." 18 U.S.C. § 1962(c). The definition of "person" includes "any individual". 18 U.S.C. § 1961(3). Defendants J. Caton and Melton are individuals. The estate is an entity capable of holding an interest in property. "Enterprise" is defined to include "any ... individual. This was a sole proprietorship." 18 U.S.C. § 1961(4). See, United States v. Elliott, 571 F.2d 880, 898, n.18, (5th Cir.) ("The number of persons making up an enterprise is irrelevant...") cert. den., 439 U.S. 953, 99 S.Ct. 349, 58 L.Ed.2d 344 (1978). Caton's business activities in the rental and construction fields, which clearly affected commerce, were such an enterprise. "Patterned activity means activity that is not "isolated" or "sporadic", but is continuous and related." S.Rep.No. 91-617, 91st Cong. 1st Sess. 158 (1969), U.S.Code Cong. & Admin.News 1970, p. 4007; see...