Vietnam Veterans of America, Inc. v. Guerdon Indus.

• Decision Date: 30 September 1986
• Docket Number: Civ. A. No. 85-244-JJF.
• Citation: 644 F. Supp. 951
• Parties: VIETNAM VETERANS OF AMERICA, INC., et al., Plaintiffs, v. GUERDON INDUSTRIES, INC., et al., Defendants.
• Court: U.S. District Court — District of Delaware

644 F. Supp. 951

VIETNAM VETERANS OF AMERICA, INC., et al., Plaintiffs, v. GUERDON INDUSTRIES, INC., et al., Defendants.

Civ. A. No. 85-244-JJF.

United States District Court, D. Delaware.

September 30, 1986.

COPYRIGHT MATERIAL OMITTED

Januar D. Bove, Jr., of Connolly, Bove, Lodge & Hutz, Wilmington, Del., Nicholas Gilman, and Daniel F. Hayes, of Smiley, Olson, Gilman & Pangia, Washington, D.C., for plaintiffs.

James F. Burnett, of Potter, Anderson & Corroon, Wilmington, Del., Jay G. Strum, and Jane W. Parver, of Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant U.S. Home Corp.

Lawrence C. Ashby, of Ashby, McKelvie & Geddes, Wilmington, Del., Stephen A. Weiner, of Winthrop, Stimson, Putnam & Roberts, New York City, for defendant Shelter America Corp.

Josy W. Ingersoll, of Young, Conaway, Stargatt & Taylor, Wilmington, Del., Reed E. Hundt, of Latham, Watkins & Hills, Washington, D.C., for defendant Guerdon Industries, Inc.

Alan I. Baron, and Ellen Scalettar, of Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, Washington, D.C., of counsel to defendant Wood Bros. Homes, Inc.

Robert B. Young, of Young & Sherlock, Dover, Del., James H. O'Hagan, of Dorsey & Whitney, Minneapolis, Minn., for defendant Green Tree Acceptance, Inc.

Allen M. Terrell, Jr., of Richards, Layton & Finger, Wilmington, Del., for defendants Wood Bros. Homes, Inc., GDV, Inc., City Investing Co., City Investing Co. Liquidating Trust, Criterion Financial Corp., and Peter C.R. Huang.

Jo-Anne Weissbart, of Cravath, Swaine & Moore, New York City, of counsel to defendants GDV, Inc., City Investing Co., City Investing Co. Liquidating Trust and Peter C.R. Huang.

Richard K. Herrmann, of Bayard, Handelman & Murdoch, Wilmington, Del., Hassan Alaghband, of Gibson, Dunn & Crutcher, Washington, D.C., for defendant Fleetwood Enterprises, Inc.

Martin P. Tully, of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., Louise Ellen Teitz, of Thompson & Knight, Dallas, Tex., for defendant Redman Industries, Inc.

Alfred M. Isaacs, of Morris, James, Hitchens & Williams, Wilmington, Del., for defendant Zimmer Corp.

F. Alton Tybout, of Tybout, Redfearn, Casarino & Pell, Wilmington, Del., for defendant Kensington Mort. and Finance Co., Inc.

OPINION

FARNAN, District Judge.

This action was brought under 28 U.S.C. § 1331 alleging claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq., and the Truth In Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., as well as under this Court's pendent jurisdiction with respect to state and common law claims. The First Amended Class Action Complaint, Docket Item ("D.I.") 31, alleges seven claims against fourteen separate defendants: Guerdon Industries, Inc., Wood Brothers Homes, Inc., GDV, Inc., City Investing Company, City Investing Company Liquidating Trust, Peter C.R. Huang, Fleetwood Enterprises, Inc., Redman Industries, Inc., U.S. Home Corporation, Commodore Corporation, and Zimmer Corporation (collectively the "non-financial defendants"), as well as Green Tree Acceptance, Inc., Kensington Mortgage and Finance Co., Inc., and Shelter America Corporation, Inc. (collectively the "financial defendants"). The financial defendants collectively moved to dismiss Claims III, V and VII of the Amended Complaint pursuant to (1) F.R. C.P. 12(b)(6) for failure to state a claim upon which relief can be granted; (2) F.R. C.P. 9(b) for failure to plead fraud with particularity; (3) F.R.C.P. 12(b)(2) and 12(b)(3) for lack of personal jurisdiction and improper venue as to defendants Kensington Mortgage and Finance Co., Inc. and Shelter America Corp., Inc.; and additionally, to dismiss plaintiff Vietnam Veterans of America, Inc. (hereinafter "V.V.A.") for lack of standing. Similarly, the non-financial defendants collectively moved to dismiss Claims I, II, IV and VI of the Amended Complaint on the grounds that (1) each count fails to state a claim upon which relief can be granted under F.R.C.P. 12(b)(6); (2) Claims I, II and VI fail to plead fraud with the particularity required by F.R.C.P. 9(b); (3) lack of standing on the part of the individual plaintiffs; and (4) lack of standing on the part of V.V.A.

FACTUAL BACKGROUND

As described in the Amended Complaint, this action arises from alleged abuse by the defendants of the mobile home loan guaranty provisions of the Veterans Housing Act of 1970, 38 U.S.C. §§ 1801-1827, as amended. Under this Act, the Veterans Administration ("V.A.") has administered a loan guaranty program to assist veterans and active duty military personnel in purchasing mobile homes. 38 U.S.C. § 1819(g); 38 C.F.R. § 36.4201 et seq. Currently, the V.A. guarantees $20,000 or 50% of the total loan amount, whichever is less, for loans to veterans for the purchase of mobile homes. 38 U.S.C. § 1819(c)(3). As a prerequisite for the guaranty, the manufacturer of the mobile home must certify as the true manufacturer's invoice cost the actual wholesale price charged by the manufacturer to the dealer, on an invoice prescribed by the V.A. on each sale. 38 C.F.R. § 36.4202(k). The V.A. then restricts the original principal amount of the loan to 120% of the wholesale cost, as certified by the manufacturer. 38 C.F.R. § 36.4204(d)(1)(i). If this principal loan amount exceeds 120% of the wholesale cost, the V.A. will not guarantee the loan.

The Amended Complaint also alleges that, on February 15, 1985, defendant Guerdon Industries, Inc. pleaded guilty in the U.S. District Court for the Northern District of Georgia to five counts of violating 18 U.S.C. § 1001, by making false and fraudulent certifications of the wholesale price charged to dealers on invoices Guerdon submitted in connection with sales of its mobile homes under the loan guaranty program. Plaintiff alleges that the amounts certified by Guerdon substantially exceeded the actual wholesale price being charged to the dealer, and that money repaid to the United States by Guerdon represented payments made by the V.A. under its guaranty, after defaults by veterans. Amended Complaint, D.I. 31, ¶¶ 7-8.

Plaintiffs allege that these false certifications by Guerdon, as well as by other mobile home manufacturers, represent an "invoice packing" scheme by mobile home manufacturers, in conspiracy with mobile home dealers.¹ Under this scheme, the manufacturer certifies an inflated wholesale cost to be paid by the dealer. The manufacturer then secretly pays part of this inflated, or "packed" amount to the dealer as a kickback. Because the amount of a loan which the V.A. will guarantee is limited to 120% of this wholesale cost, the "packed" wholesale cost enables loans to be guaranteed for a higher principal amount than would ordinarily be possible. As a result, the veteran has to pay a higher principal amount of the loan, as well as higher finance charges over the term of the loan, than if the manufacturer had properly certified the wholesale cost. Plaintiffs allege that a significant number of veterans have been forced to default on their loans because of this inflated burden.

According to the Amended Complaint, plaintiffs' first claim is for injunctive relief under RICO against the non-financial defendants and Commodore; their second claim is for damages under RICO against the non-financial defendants and Commodore; their third claim is for damages under RICO against the financial defendants; their fourth claim is for damages under TILA against the non-financial defendants; their fifth claim is for damages under TILA against the financial defendants; their sixth claim is for damages under state law against the non-financial defendants; and, their seventh claim is for damages under state law against the financial defendants.

DISCUSSION

RICO Claims.

The non-financial defendants have moved to dismiss Claims 1 and 2 on the ground that plaintiffs have failed to state a claim under RICO, that these claims do not plead fraud with the particularity required by F.R.C.P. 9(b), that the claims fail to properly plead a conspiracy to violate RICO, and that RICO does not provide plaintiffs with a right to injunctive relief.²

Failure to plead elements of RICO.

Dismissal for failure to state a claim is not proper "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 (1957); Bernstein v. IDT Corp., 582 F.Supp. 1079, 1082 (D.Del.1984).

The non-financial defendants argue that the Amended Complaint does not properly plead an enterprise, as required by 18 U.S.C. § 1962(a), (b) and (c). They contend that, under Section 1962, the "person" subject to liability, as defined in Section 1961(3),³ cannot be the same entity as the "enterprise", as defined in Section 1961(4).⁴ According to the non-financial defendants, because the Amended Complaint does not allege an "enterprise" separate from the named corporate defendants, the plaintiffs' RICO claims must be dismissed.

In order to analyze this assertion, it is necessary to examine the language of the statute. Section 1962 prohibits three separate types of activities. Section 1962(a) provides that:

It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of Section 2, Title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce....

Section 1962(b) provides that:

It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or

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