Petition for Writ of Certiorari — Holmberg v. Morrisette
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rN IH Suy nz Court, U.S. |
86-11 74 | rlLED
: ~~ Ys gan 13. 887
No. | JOSEPH eae JR.
a
Tf
IN THE
Supreme Court of the Anited States
October Term, 1986
Douglas A. Holmberg,
Petitioner,
¥
Rodney C. Morrisette and Mintex Corporation, a Minnesota
corporation,
Respondents
ON WRIT OF CERTIORARI TO THE.UNITED ST ATES COURT OF
APPEALS FOR THE EIGHTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
Of Counsel: Joseph W. Anthony
FRUTH & ANTHONY, P.A. 1350 International Centre
Robert L. Lazear 900 Second Avenue South
1350 International Centre Minneapolis, Minnesota 55402
900 Second Avenue South (612) 349-6969
Minneapolis, Minnesota 55402 Attorney for Petitioner
(612) 349-6969 Douglas A. Holmberg
1987 — Northwest Printing Co., 3010 2nd St. No., Minneapolis, MN 55411 — 588-7506
QUESTION PRESENTED
The Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1964(c) creates a private cause of
action for any person injured in his business or property by
reason of a violation of 18 U.S.C. § 1962(c). Section
1962(c) prohibits any person from conducting the affairs
of an enterprise through a pattern of racketeering activity.
A pattern of racketeering activity is defined to include at
least two racketeering acts within a ten year period. 18
U.S.C. § 1961(5). A racketeering act is one of an enumer-
ated list of criminal activities, including mail and wire
fraud. 18 U.S.C. § 1961(1).
In the present case, the district court found that the in-
dividual respondent had conducted the affairs of the cor-
porate respondent through a pattern of racketeering activity
that included criminal acts which defrauded three indi-
viduals, three banks and an Illinois court over a prolonged
period of time. The district court also found numerous
acts of mail and wire fraud in furtherance of a pattern of
criminal conduct. Accordingly, the district court found that
petitioner had sustained an injury by reason of a violation
of 18 U.S.C. § 1962(c).
Without challenging the trial court’s factual findings, the
Eighth Circuit Court of Appeals held, as a matter of law,
that the statutory definition of a pattern of racketeering
activity, 18 U.S.C. § 1961(5), means multiple criminal
schemes involving numerous racketeering acts. Relying on
_its interpretation of the language of Section 1961(5) and
the Supreme Court’s decision in Sedima S.P.R.L. v. Imrex
Co., Inc., —U.S.—, 105 S.Ct. 3275 (1985), the Eighth
Circuit reversed the district court’s finding of civil liability
under RICO.
By contrast, the Second, Fifth, Seventh and Eleventh
Circuits have expressly or impliedly held that the statutory
definition of a pattern of racketeering activity does not mean
multiple schemes and numerous racketeering acts but as
few as two racketeering acts committed within ten years
of one another. United States v. Teitler, 802 F.2d 606
(2nd Cir. 1986); United States v. Tom, 787 F.2d 65
(2nd Cir. 1986); R.A.G.S. Couture, Inc. v. Hyatt, 774
F.2d 1350 (Sth Cir. 1985); Illinois Department of Revenue
v. Phillips, 771 F.2d 312 (7th Cir. 1985); Bank of America
National Trust and Savings Association v. Touche Ross &
Co., 782 F.2d 966 (11th Cir. 1986). Presently, there is
a sharp disagreement among the circuits regarding the
meaning of the phrase “pattern of racketeering activity.”
Therefore, this case presents the important question ex-
plicitly left open by this Court in Sedima, 105 S.Ct. at 3285
n.14 (1985):
_ Whether the. statutory definition of a “pattern of
racketeering activity”, 18 U.S.C. § 1961(5), * >ans
at least two or more criminal acts within a ten year
period or multiple criminal schemes involving numer-
ous racketeering acts.
LIST OF PARTIES
Parties to the proceedings below were petitioner Douglas
A. Holmberg and respondents Rodney C. Morrisette and
Mintex Corporation, a Minnesota corporation. *
*Rule 28.1 list: Mintex Corporation has no parent companies, subsidiaries
or affiliates.
ne anne mene eRe ONE
TABLE OF CONTENTS
Page
QUESTION PRESENTED ............. ee ree i
ee Cha cso ys csccosecenesse ii
TABLE OF AUTHORITIES ................... iv
Eee ee re l
ee esd peck sec essvessccecs 1
PPPOE MEOWOMWMIED 6. cc ccc es sccccccceses 2
STATEMENT OF THE CASE .........2cccceees 2
A. The District Court’s Findings of Fact and Con-
TE 6 6p iw 5 San see 4 hse 6 gsc ene 2
B. The Decision of the Court of Appeals ....... 3
REASONS FOR GRANTING THE WRIT ........ 4
A. The Decision Below Raises Questions Of Excep-
tional Importance Which Should Be Settled By
ER SAGE Gc ese ibe WKAR ON ES ety eee 4
1. The Plain Language Of The Statute Should
Control Civil RICO Actions ........... 7
2. The Court Of Appeals Decision Conflicts
With This Court’s Decision In Sedima .... 10
3. The Holmberg Decision Is Inconsistent
With The Decisions Of The Second, Fifth,
Seventh And Eleventh Circuits ......... 16
B. The Holmberg Decision Threatens To Create
Different Standards Of Review; One For Civil
RICO And One For Criminal RICO ....... 19
EG G2 Pi NRRL AE RP 21
I ee eS gly Bila e ahein A-|
A. Opinion of the United States Court of Appeals
for the Eighth Circuit entered September 3,
SEE. 4enke ane cea aanew mes A-1
B. Memorandum and Order of the United States
District Court for the District of Minnesota
entered February 1, 1985S .... 2... cc cerces A-41
C. Order of the United States Court of Appeals for
the Eighth Circuit Denying Petition for Rehear-
ing and Rehearing En Banc entered October 16,
i eee eT Pe Pere Tere TE ee The eee A-46
TABLE OF AUTHORITIES
Cases Page
Bank of America National Trust and Savings Associa-
Bush Development Corp. v. Harbor Place Associates,
632 F.Supp. 1359 (E.D.Va. 1986) ... 0. cc iias
Ghouth v. Conticommodity Services, Inc., 642 F.Supp.
SoRS (Ua CS OOUE he hese keep a ehes SS, 35,
Graham v. Slaughter, 624 F.Supp. 222 (N.D.IIl. 1985)
Holmberg v. Morrisette, 800 F.2d 205 (8th Cir.
18
13
SEP he atcunewes 7, 8, 10, 11, 13, 14, 15, 18, 19, 20
Tannelli v. United States, 420 U.S. 770 (1975) .......
Illinois Department of Revenue v. Phillips, 771 F.2d
Fe EO SOE oso bc xnav in enbenne ii, 6, 16,
Morgan v. Bank of Waukegan, 804 F.2d 970 (7th Cir.
oe, Se eee ee ee oy aa Price Bye 26,
Papai v. Cremosnik, 635 F.Supp. 1402 (N.D.IIl. 1986)
Paul S. Mullin & Associates, Inc. v. Bassett, 632 F.Supp.
ee SO RD oho 50 0h dc ae eae ae
R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350 (Sth
CRE hse sioner sense eve erewernoet li, 6, 12,
iy
17
17
13
16
Sedima S.P.R.L. v. Imrex Co., Inc., — U.S. —, 105
fe ee Bik} ) ee ah 4. 5.6, 7, 9 39, 13,
12, 13, 15, 17, 18, 20, 21
Sedima §.P.R.L. v. Imrex, 741 F.2d 482 (2nd Cir.
DEE koe b.n'cks 6 an OO RR ees basta
Superior Oil v. Fulmer, 785 F.2d 252 (8th Cir.
| Pee re ee are ire eer ee 7, 8, 12, 14
Trak Microcomputer Corp. v. Wearne Bros., 628
F.Supp. 1089 (NDT. 1965) osicvicvcssewwces 10
Tryco Trucking Co. v. Belk Stores Services, 684 F.Supp.
er ege ge Fok. F Ga |} Ree ee igre aw 10
United States v. Aleman, 609 F.2d 298, 304 (7th Cir.
> er eee eT Te ey Pere See oe ee 19
United States v. Davis, 576 F.2d 1065 (3rd Cir. 1978) 19
United States v. Dean, 647 F.2d 779 (8th Cir. 1981). 19
United States v. Elliott, 571 F.2d 880 (Sth Cir. 1978). 19
United States v. Teitler, 802 F.2d 606 (2nd Cir.
COUN. 460.6 eR a ee ee eee ii, 6, 16
United States v. Tom, 787 F.2d 65 (2nd Cir.
SE vas kb cn ce eb s ko bee eee li, 6, 16, 19
United States v. Turkette, 452 U.S. 575 (1981) 5, 11, 19, 20
United States v. Weatherspoon, 581 F.2d 595 (7th Cir.
i) ee eee er ere Peer ee art 19
Statutes
OF ae Ee CE APOe ob a cewek week a pe wee 2
fo oh SY & ine r a ares apa be cca f i
See EEE 6 hake abe eecbe Va ewes 2. i. 7, 32
Peis a) ee ee ee eee eee i
BET lie or ee eee ee 2
ee we Peer ere ger rrr rare. i
Pe Re ED bc vehi aN cceateversnaws 2, 6, 11
ee EF 6 o 5 hs peewee eee ae eres 2
Fok ge S| Gee a eee ik 3
ae Rs ee SEs COE i eae 8 CES eee 2
IN THE
Supreme Court of the Gnited States
October Term, 1986
Douglas A. Holmberg,
Petitioner,
V.
Rodney C. Morrisette and Mintex Corporation, a Minnesota
corporation,
| Respondents
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE EIGHTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
OPINIONS BELOW
The opinion of the Court of Appeals for the Eighth -
Circuit is reported at 800 F.2d 205 and is reprinted in the
Appendix at pp. A-1 — A-16. The district court’s Findings
of Fact, Conclusions of Law, Order for Judgement and
Memorandum is not officially reported and is printed in the
Appendix at pp. A-16.
JURISDICTION
The judgment of the Court of Appeals was entered on
September 3, 1986. A timely petition for rehearing en banc
2
was filed and, on October 16, 1986, the Court of Appeals
entered its order denying Petitioner’s petition for rehearing
en banc. (App. A-46)
This Court’s jurisdiction is invoked under and pursuant
to 28 U.S.C. § 1254(1).
STATUTES INVOLVED
The Organized Crime Control Act of 1970, Title IX
(Racketeer Influenced and Corrupt Organizations), 18
U.S.C. §§ 1961-1968, as amended, (RICO), and 18 U.S.C.
§ 3575(e). ;
The relevant sections of these statutes are set forth in
the Appendix at pp. A-46 — A-48.
STATEMENT OF THE CASE
A. The District Court’s Findings of Fact and Conclusions
of Law
After a seven day bench trial, the district court awarded
treble damages under the Organized Crime Control Act of
1970, Title IX (Racketeer Influenced and Corrupt Organi-
zations) 18 U.S.C. §§ 1961-1968 (as amended) (“RICO”)
and actual and punitive damages under two common law
counts for fraud and conversion against respondents Rodney
C. Morrisette (“Morrisette”) and Mintex Corporation
(“Mintex.”). Jurisdiction of the district court was founded
upon 18 U.S.C. § 1964(a) and 28 U.S.C. §§ 1331 and
1332. * |
In detailed findings of fact and conclusions of law the
district court concluded that Morrisette had conducted the
affairs of Mintex through a pattern of criminal conduct
that included false representations to three individuals,
3
three banks and an Illinois state. court over six months.
(Appendix pp. A-21— A-41) The district court found
that Morrisette had engaged in a complicated scheme that
involved altering documents and creating fictitious records
for the purpose and with the intent of defrauding Holmberg,
two other individuals and three banks. (App. A-24 — A-41)
The district court also concluded that Morrisette had
conducted Mintex’s affairs through a pattern of illegal ac-
tivities directed at recovering monies and goods to which
Mintex and Morrisette were not lawfully entitled. Speci-
fically, the district court identified at least four distinct
instances in which Morrisette committed fradulent acts
against different victims. Those fraudulent acts had the
same or similar purpose, motive and results and were ac-
complished through the use of the United States mails and
interstate telephone and wire facilities. (App. at A-37 —
A-45). The district court found that the purpose for Morri-
sette’s unlawful conduct was the misappropriation of peti-
tioner’s $125,000 and the total misappropriation of goods
and money in the amount of $429,000. (App. at A-32 —
A-36). The false documents were intentionally created by
Morrisette to wrongfully deprive the individuals of their
funds and, accordingly, the district court found that Mor-
risette had acted with a willful indifference to petitioner’s
rights. (App. at A-41).
B. The Decision of the Court of Appeals
On appeal a three-judge panel of the Eighth Circuit Court
of Appeals affirmed the district court’s findings of fact with
respect to the respondent’s criminal activities. Jurisdiction
in the Court of Appeals was invoked under 28 U.S.C. §
1291. It also affirmed the district court’s findings of liability
for actual and punitive damages on the fraud and conver-
ng
sion claims. As a matter of law, however, the Eighth Cir-
cuit held that defrauding three individuals, three banks
and an Illinois state court over a six month period of time
could not constitute a pattern of racketeering activity within
the meaning of the Act. Accordingly, the Eighth Circuit
reversed the district court’s conclusions of law on RICO
and remanded the case for a determination of the amount
of damages petitioner should recover with respect to his
state law claims. Holmberg timely petitioned the Eighth
Circuit for rehearing en banc and that petition was denied
by an Order dated October 16, 1986.
REASONS THAT WRIT SHOULD BE GRANTED
A. The Decision Below Raises Questions Of Exceptional
Importance Which Should Be Settled By This Court
The ruling of the Court of Appeals that the statutory
definition of a pattern of racketeering activity means mul-
tiple criminal schemes involving numerous racketeering
acts raises questions of exceptional importance expressly
left open by this Court in Sedima S.P.R.L. v. Imrex Co.,
Inc., 105 §.Ct. 3275, 3285 n.14 (1985).
In Sedima this Court acknowledged that RICO was being
applied in situations not expressly anticipated by Congress
and that it was evolving into something different from the
original conception of its enactors. Sedima S.P.R.L. v.
Imrex Co., Inc., 105 S.Ct. 3275, 3287 (1985). Despite the
unanticipated development of the law, the Court instructed
that “. . . it is not for the judiciary to eliminate the private
action in situations where Congress has provided it. . .” Id.
at 3287. The Supreme Court concluded that if RICO was
being applied in a fashion inconsistent with Congress’
desires “. . . its correction must lie with Congress.” /d. at
3287.
4
3
One of the issues which the Supreme Court considered,
but did not resolve, was the definition of a pattern of rack-
eteering activity. Although Sedima did not provide a defini-
tion it did provide instruction.’ Specifically, in footnote 14,
the Court stated as follows:
As many commentators have pointed out, the defini-
tion of a ‘pattern of racketeering activity’ differs from
the other provisions in § 1961 in that it states that a
pattern ‘requires at least two acts of racketeering
activity, § 1961(5) (emphasis added), not that it
‘means’ two such acts. The implication is that while
two acts are necessary, they may not be sufficient.
Indeed, in common parlance two of anything do not
generally form a ‘pattern.’ The legislative history
supports the view that two isolated acts of racketeering
activity do not constitute a pattern. As the Senate
Report explained: “The target of [RICO] is thus not
sporadic activity. The infiltration of legitimate busi-
ness normally requires more than one ‘racketeering
activity’ and the threat of continuing activity to be
effective. It is this factor of continuity plus relationship
which combines to produce a pattern.’ S. Rep. No.
91-617, p. 158 (1969) (emphasis added). Similarly,
the sponsor of the Senate bill, after quoting this portion
of the Report, pointed out to his colleagues that ‘[t!he
term ‘pattern’ itself requires the showing of a relation-
ship. .. . So, therefore, proof of two acts of racketeer-
ing activity, without more, does not establish a pattern.
... 116 Cong. Rec. 18940 (1970) (statement of
Sen. McClellan). See also id., at 35193 (statement of
1Footnote 14 is to be considered in light of the Supreme Court’s insis-
tence on strict adherence to the language of the statute. Efforts to
restrict private civil RICO actions through interpretations which depart
from or limit the language of the statute have been disfavored by the
Supreme Court. See Sedima, 105 S.Ct. at 3284; United States vy.
Turkette, 452 U.S. 575, 580 (1981).
6
Rep. Poff) (RICO ‘not aimed at the isolated offend-
er’); House Hearings, at 665. Significantly, in defining
‘pattern’ in a later provision of the same bill, Congress
was more enlightening: ‘criminal conduct forms a pat-
tern if it embraces criminal acts that have the same or
similar purposes, results, participants, victims, or
methods of commission, or otherwise are interrelated
by distinguishing characteristics and are not isolated
events.’ 18 U.S.C. § 3575(e). This language may be
useful in interpreting other sections of the Act. Cf.
lannelli v. United States, 420 U.S. 779. 789 (1975).
Sedima at 3285.
Despite the Supreme Court’s clear admonition that it is
ihe role of Congress, and not the judiciary, to amend RICO,
a number of courts have seized on the discussion of “pat-
tern” in Sedima to curtail civil RICO actions.
Since Sedima four courts of appeals have addressed the
“pattern” requirement. Those courts have embellished
RICO’s pattern requirement and generally applied at least
four different tests. The least restrictive test requires only
two related acts of mail or wire fraud to establish a RICO
pattern. United States v. Tom, 787 F.2d 65, 68 (2d Cir.
1986); R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350,
1352 (Sth Cir. 1985); Illinois Department of Revenue v.
Phillips, 771 F.2d 312, 313 (?#th Cir. 1985). A second
test requires a showing of more than one racketeering act
and the threat of continuing activity. United States v. Teitler,
802 F.2d 606, 612 (2nd Cir. 1986); Bank of America v.
Touche Ross & Co., 782 F.2d 966, 971 (11th Cir. 1986).
A third test maintains that the predicate acts must be on-
going over an identified period of time so that they can
fairly be viewed as constituting separate transactions.
7
Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th
Cir. 1986). A fourth and more restrictive test requires
the existence of multiple schemes and evidence that the
criminal conduct is a regular part of a defendant’s business
activity rather than an “aberration.” Superior Oil Co. v.
Fulmer, 785 F.2d 252, 257 (8th Cir. 1986); Holmberg v.
Morrisette, 800 F.2d 206, 208, 210 (8th Cir. 1986).
In the present case, the Eighth Circuit has adopted a
restrictive interpretation of a pattern of racketeering activity
that conflicts with the plain language of the statute, this
Court’s decision in Sedima and every other circuit that has
considered the question. There are, therefore, questions of
exceptional importance that are dividing the circuits which
would be resolved by the granting of this Petition.
1. The plain language of the statute should control
civil RICO actions. ig
A pattern of racketeering activity is defined at 18 U.S.C.
1961(5) as follows:
(5) “pattern of racketeering activity” requires at least
two acts of racketeering activity, one of which occurred
after the effective date of this chapter [enacted Oct. 15,
1970] and the last of which occurred within ten years
(excluding any period of imprisonment) after the
commission of a prior act of racketeering activity;
In the present case the individual respondent committed
at least two acts of racketeering activity within ten years
of each other in furtherance of criminal activities which
defrauded three different individuals, three banks and an
Illinois state court over a six month period. The Eighth
Circuit did not challenge those factual findings. Instead
8
the Court of Appeals held that: “[T]here was no evidence
that Mintex or Morrisette had engaged in like activities in
the past or that they were engaged in other criminal ac-
tivities.” Holmberg v. Morrisette, 800 F.2d 205, 210 (8th
Cir. 1986). Thus, as a matter of law, Holmberg had failed
to prove the continuity necessary to form a “pattern” of
racketeering activity. Jd. at 210.
The Court of Appeals read the statutory language of
Section 1961(5) to mean that the defendant must be
proved to be currently engaged in other criminal activities
(i.e. multipie criminal schemes) or to have been engaged in
like criminal activities in the past. /7. at 210. The Eighth
Circuit’s interpretation of the phrase “pattern of racketeer-
ing activity” has come to be known as the multiple criminal
scheme and aberration test. Superior Oil v. Fulmer, 785
F.2d 252, 257 (8th Cir. 1986);? Ghouth v. Conticommodity
Services, Inc., 642 F.Supp. 1325, 1335 n.14 (N.D. IIL.
1986).
The plain language of the statute simply does not support
the Eighth Circuit’s interpretation. Section 1961(5) cannot
be reasonably construed to impose a multiple scheme re-
quirement or a requirement that criminal activity must be a
regular part of the defendant’s business. The statute does
not speak in terms of schemes — it speaks in terms of
racketeering acts. The Act does not require the defendant to
have engaged in like or similar activities in the past or to
be currently involved in other criminal activities.
*In Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir. 1986), the
Eighth Circuit first articulated the multiple scheme and aberration
test. In that case the Eighth Circuit held that mutiple related acts of
mail and wire fraud as part of a single scheme to divert natural gas
did not amount to a pattern of racketeering activity. In reaching its
decision the Court of Appeals emphasized that, “there was no evi-
dence suggesting that such activities had occurred previously or that
hy — involved were engaged in other criminal activities.”
. at 257.
9
The Eighth Circuit interpreted Section 1961(5) as adding
requirements to the prosecution of private civil RICO ac-
tions that are now expressly contained in the statute. In
doing so, it has engaged in a form of judicial legislation
that the Supreme Court expressly rejected in Sedima.
Sedima, 105 S.Ct. at 3287.°
Interpreting Section 1961(5) to require proof of multiple
criminal schemes produces unintended results. As the
Seventh Circuit has noted, a multiple criminal scheme re-
quirement would permit “. . . defendants who commit a
large and ongoing scheme, albeit a single scheme . . . [to]
... automatically escape RICO liability for their acts . . .”
Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir.
1986). Thus, in the present case, even though respondent’s
conduct embraced acts that had the same or similar pur-
pose, results, participants, victims and methods of com-
mission and were not isolated events they could not amount
to a pattern under the Eighth Circuit’s interpretation of
the statute.
Other courts, recognizing the absence of any statutory
language that would support a multiple scheme require-
ment, and heeding the admonition in Sedima that extra-
statutory limitations on RICO will not be tolerated, have
ruled that a multiple scheme requirement cannot be read
into the plain language of the Act:
’The Eighth Circuit’s actions in this regard are not dissimiiar from the
efforts of the Second Circuit which attempted to restrict the scope
of the statute by imposing “prior criminal conviction” and “rack-
eteering injury” requirements. Sedima S.P.R.L. v. Imrex Co., Inc.,
741 F.2d 482, 496 (2d Cir. 1984). The Second Circuit's “embellish-
ments” were designed to discourage private civil actions and were
rejected by the Supreme Court because they were unsupported by
the statutory language. Sedima, 105 S.Ct. at 3286.
10
In determining the meaning of a ‘pattern of racketeer-
ing activity’ this court is bound to the language of the
RICO statute. That act defines what a ‘racketeering
activity’ is. The act does not suggest that a ‘pattern
of racketeering activity’ means a pattern of fraudulent
schemes; it merely requires a pattern of ‘racketeering
activity.” Sedima does not compel a contrary inter-
pretation.
Trak Microcomputer Corp. v. Wearne Bros., 628 F.Supp.
1089, 1096 (N.D. Ill. 1985); Tryco Trucking Co. v. Belk
Stores Services, 684 F.Supp. 1327, 1334 (W.D.N.C. 1986)
(“In its discussion of ‘pattern,’ neither RICO nor its legis-
lative history refer to ‘pattern’ in terms of ‘schemes.’ The
statute refers to ‘acts,’ two or more of which must be ‘re-
lated’ and in ‘continuity’ to constitute a ‘pattern.’ ”’)
In rejecting the Second Circuit’s imposition of a prior
criminal conviction requirement, the Supreme Court in
Sedima noted that the word “conviction” did not appear in
any relevant portion of the statute. Sedima, 105 S.Ct. at
3281. Likewise the terms and phrases used by the panel in
Holmberg, i.e. “scheme”, “like criminal activities” and “past
criminal activities” do not appear in any relevant portion
of the statute. Accordingly, RICO’s plain language does
not require evidence of a prior conviction or related criminal
schemes in order to prove a pattern of racketeering activity.
Holmberg’s multiple criminal scheme requirement is un-
supported by the plain language of the statute and should
be rejected.
2. The Court of Appeals decision conflicts with this
Court’s decision in Sedima.
The Holmberg decision is also inconsistent with the Su-
preme Court’s discussion of pattern in Sedima. A careful
11
reading of footnote 14 to the Sedima opinion provides little
comfort for the Eighth Circuit’s rationale in Holmberg.‘
There is absolutely no reference whatsoever to a multiple
scheme requirement. The Supreme Court did not hold that
the defendant must have engaged in multiple criminal
schemes to prove a threat of continuing criminal conduct.
To the contrary, the Supreme Court described the definition
in 18 U.S.C. § 3575(e) as enlightening:
Criminal conduct forms a pattern if it embraces crimi-
nal acts that have the same or similar purposes, results,
participants, victims, or methods of commission, or
otherwise are interrelated by distinguishing character-
istics and are not isolated events.
Sedima, 105 S.Ct. at 3285 n.14.
Whether criminal conduct forms a pattern is a factual
determination that involves the purposes, results, partici-
pants, victims and methods of commission. In the present
case, the district court made the factual determination that
the respondent’s conduct embraced acts that had the same
or similar purpose and results. The participant was one and
the same, namely respondent Morrisette, and there were
multiple victims who were injured by similar acts. The
methods of commission were substantially similar and re-
lated to each other. The events took place over a lengthy
period of time and the course of conduct was continuous
as opposed to being an isolated event. Furthermore, the
district court made factual findings that satisfied both the
statutory requirements and the Supreme Court’s enlightened
4A reading of United States v. Turkette, 452 U.S. 576, 583 (1981), a —
case that preceded Sedima, also indicates that a pattern is proved
by “... evidence of the requisite number of acts of racketeering com-
mitted by the participants in the enterprise.” -
12
test for proving a pattern of racketeering activity. Yet, under
the Eighth Circuit’s reading of 18 U.S.C. § 1961(5) no
pattern can be said to exist. That reading is inconsistent
with the discussion of pattern in Sedima.
It is clear that the major focus of footnote 14 in Sedima
was the need for a relationship between predicate acts. Thus,
in R.A.G.S. Couture, Inc. v. Hyatt, 774 F.2d 1350, 1356
(1985), Judge Wisdom of the Fifth Circuit read Sedima
to mean that merely two “isolated” acts would not con-
stitute a pattern. In Bush Development Corp. v. Harbor
Place Associates, 632 F.Supp. 1359, 1366-67 (E.D.Va.
1986), the district court cited footnote 14 in its entirety
and held that “it is clear from the quoted language that the
Supreme Court’s concern is directed towards instances
where sporadic or isolated acts are alleged to form a pat-
tern of racketeering activity, rather than to instances where
the racketeering acts are so closely related that they can
be said to be part of a single criminal episode.” Jd. at 1366.
The court found that “in addition to turning the Supreme
Court’s reasoning on its head,” a multiple scheme require-
ment would be out of line with the tenor of the remainder
of the Sedima opinion which requires the RICO statute to
be read broadly. /d.
Even those courts that have read Sedima as an invitation
to restrict RICO have, with few exceptions, rejected the
multiple scheme requirement adopted by the Eighth Cir-
cuit. Instead, they have adopted the relatively more liberal
requirement of multiple episodes. In Ghouth v. Conticom-
modity Services, Inc., 642 F.Supp. 1325 (N.D.IIl. 1986),
Judge Aspen of the United States District Court for the
Northern District of Illinois expressly rejected “the overly
restrictive approach found in Superior Oil” and held that
“NN .
13
different criminal “episodes”® which further one scheme
constitute a “pattern.” Jd. at 1337 n.16. The court reviewed
the post-Sedima case law and found that the most important
factor in determining whether a course of conduct exhibits
the continuity sufficient to constitute a pattern, “is that the
criminal acts cause ‘independent harmful significance,’ i.e.
cause more than one basic injury.” 7d. at 1336. The court
reasoned that “whether or not there is one grand scheme to
defraud, a pattern may exist if the multiple predicate acts
are directed at and harm more than one person or entity. /d.
The court’s approach in Ghouth is in sharp contrast to the
Eighth Circuit’s holding in Holmberg that a single scheme
with four episodes which defrauded four separate victims
on different occasions could not, as a matter of law, con-
stitute a pattern under RICO.
Another recent case that considered the “continuity”
element of the RICO pattern requirement is Papai v.
Cremosnik, 635 F.Supp. 1402 (N.D.Ill. 1986). In Papai,
Judge Moran criticized the courts that have considered the
RICO pattern requirement after Sedima for adopting an
“T know it when I see it” style of discourse. Jd. at 1410. The
court stated that it was reluctant to follow either the episode
or scheme test without exploring the public policy implica-
tions of such a choice. Jd. The court reviewed the legislative
history of the act and found that Congress had decided that
ordinary commercial frauds should be included in RICO,
and that to the extent RICO is used as a weapon against
“white collar crime,” this purpose is not contrary to the
intent of Congress but in fact one of the “benefits” Congress
5Judge Aspen defined an “episode” as “transactions somewhat separated
in time and place.” 624 F.Supp. at 1335, citing Graham v. Slaughter,
624 F.Supp. 222, 224 (N.D.Ill 1985).
14
saw the act as providing. /d. The court ultimately held that
proof of multiple episodes was sufficient evidence of con-
tinuity and rejected a multiple scheme requirement as con-
trary to the underlying purposes of RICO:
Given all these policy considerations, we conclude
that requiring plaintiffs to plead and prove multiple
criminal schemes — in the sense either of the same
scheme being perpetuated on different entities or dif-
ferent schemes inflicted on the same entities — is not
in keeping with RICO’s purpose. Although multiple
schemes clearly evince a threat of continuing activity,
requiring proof of a pattern of multiple schemes is a
larger loophole for ‘clever defendants and their law-
yers,’ Haroco, 747 F.2d at 390, than Congress intended.
Id. at 1412. In reaching this decision, Judge Moran rejected
the Eighth Circuit’s holding in Superior Oil that multiple
criminal acts comprising a scheme to convert gas from
Superior Oil’s pipeline could not constitute a pattern. Judge
Moran described Superior Oil as “perhaps the case which
stretches the requirement of multiple schemes to its break-
ing point... .” Papai at 1408.
Of course, not even Judge Moran could have anticipated
that the Eighth Circuit would extend the rationale of
Superior Oil to a case as egregious as Holmberg. In the
present case, the Eighth Circuit did not dispute the district
court’s findings that Morrisette was involved in numerous
episodes of fraudulent conduct. Nor did the Eighth Circuit
challenge the district court’s findings that these fraudulent
episodes involved the alteration, back-dating and fabrication
of documents to defraud multiple victims over an extended
period of time. If Superior Oil extended the multiple scheme
requirement to the breaking point, Holmberg reveals the
15
multiple scheme requirement for what it really is — an act
of judicial legislation that would eliminate civil RICO
actions for commercial fraud.
The Eighth Circuit’s RICO decisions also inevitably
result in the creation of an “amorphous” standing require-
ment that is not supported by the language of the RICO
statute or by this Court’s decision in Sedima. In Paul S.
Mullin & Associates, Inc. v. Bassett, 632 F.Supp. 532, 541
(D.Del. 1986), the court used an illustration to demonstrate
the subjective nature of a multiple scheme requirement:
This Court is loath to adopt a definition of pattern
which turns on an assessment of whether one or multi-
ple criminal schemes is involved. Such a definition
would be highly susceptible to manipulative semantics.
For example, an attempt by a racketeering enterprise
to infiltrate General Motors could involve countless
acts of mail fraud, extortion, securities fraud, and
bribery. One could argue, however, that only one crimi-
nal scheme is involved because only one company was
subverted. Under this view, a ‘pattern’ would come
into existence only after the same enterprise began to
infiltrate Chrysler or Ford. On the other hand, the
enterprise, in infiltrating General Motors, undoubtedly
had committed criminal acts of a sufficient number
and variety, over a sufficient period of time, to suggest
the existence of an elaborate design. This should be
enough to create a ‘pattern’.
The Holmberg decision has introduced new elements to
the prosecution of a private civil RICO claim that are not
in the statute and were not mentioned by the Supreme
Court in Sedima. Without further guidance from this Court.
lower courts will be free to use subjective constructs, such
16
as the multiple scheme test, to defeat a cause of action under
the civil damage provisions of RICO.
3. The Holmberg Decision Is Inconsistent with the De-
cisions of the Second, Fifth, Seventh and Eleventh
Circuits.
The Second, Fifth, Seventh and Eleventh Circuits have
rejected the multiple scheme requirement in opinions issued
after Sedima. United States v. Teitler, 802 F.2d 606,
611, 612 (2nd Cir. 1986); United States v. Tom, 787
F.2d 65, 68 (2nd Cir. 1986); R.A.G.S. Couture, Inc.-v.
Hyatt, 774 F.2d 1350, 1355 (Sth Cir. 1985); Morgan v.
Bank of Waukegan, 804 F.2d 970, 976-77 (7th Cir. 1986);
Illinois Department of Revenue v. Phillips, 771 F.2d 312,
313 (7th Cir. 1985); Bank of American National Trust
and Savings Association v. Touche Ross, 782 F\2d 966,
971 (11th Cir. 1986).
In Illinois Department of Revenue, the Seventh Circuit,
concluded that the plain language of the statute supported a
finding of “pattern” in one scheme that involved the mailing
of nine fraudulent tax returns over a nine month period.
771 F.2d at 313. In Bank of America National Trust and
Savings Association, a “pattern” was found to exist where
the defendant engaged in one scheme to defraud lenders
through the use of false and misleading financial statements.
782 F.2d at 969. In R.A.G.S. Couture, the Fifth Circuit
found a pattern where there was one scheme to defraud and
at least two related acts of mail and wire fraud. 774 F.2d
at 1355. In United States v. Tom, the Second Circuit held
that two acts of racketeering activity were sufficient to
satisfy the “pattern” element in a criminal RICO action.
787 F.2d at 68. In United States v. Teitler, the Second
‘17
Circuit rejected what it considered to be the more “stringent”
reading of footnote 14 in Sedima that would have required
the prosecution to show the same or similar purposes, re-
sults, participants, victims or methods of commission. 802
F.2d at 611. According to the Second Circuit a pattern of
racketeering activity is committed if the defendant com-
mitted at least two of the racketeering acts charged against
him or her in the-indictment. /d. at 612.
In Morgan v. Bank of Waukegan, the Seventh Circuit, in
a recent decision, described the differences among the cir-
cuits on the question of pattern as a “thicket.” 804 F.2d at
974. After surveying the state of the law the Court, in a
decision that it believed was consistent with J/linois Depart-
ment of Revenue v. Phillips, expressly rejected the proposi-
tion that the racketeering acts must occur as part of separate
schemes in order to satisfy the continuity aspect of the
pattern requirement. According to the Seventh Circuit in
Morgan, a multiple criminal scheme requirement would
permit defendants who commit one large and ongoing
scheme, albeit a single scheme, to automatically escape
RICO liability for their acts. 804 F.2d at 975.
The RICO “pattern” issue is creating turmoil in the
federal courts and will continue to do so until it is resolved.
Numerous, conflicting pattern opinions are being published
each month and the pace does not appear to be diminishing.
Of course the present state of affairs was not entirely un-
anticipated. As noted by one lower court:
Rather than taking the opportunity in Sedima itself
to develop the ‘meaningful concept of pattern’ that
Congress negelected to formulate, the Supreme Court
has left this formulation to the lower courts. The
resultant proliferation of diverse and contrary district
court opinions is not surprising.
‘18
Ghouth, 624 F.Supp. at 1334 n.11. In addition, Justice
Powell’s dissenting opinion in Sedima warned that it would
be difficult, if not impossible, to reconcile the Court’s firm
rejection of restrictions imposed by the Second Circuit, with
a narrow construction of the Act’s pattern requirement.
Sedima, 105 S.Ct. at 3289, 3290.
The Supreme Court should not ignore the enormous
amount of judicial resources that has been invested in inter-
preting the dicta in a single footnote in Sedima. Nor should
it ignore the plight of RICO litigants, both plaintiffs and
defendants, who are having their rights determined under a
statute that is not being interpreted with any logic or con-
sistency. The courts can no longer wait for Congress to
provide a neat resolution to the “pattern” dispute like a
deux ex machina in the last scene of a Greek tragedy. Con-
gress has not enacted any major RICO legislation since the
Act was passed in 1970 and has not made any changes in
the legislation since this Court’s opinion in Sedima.
Holmberg presents the Court with an opportunity to re-
solve the confusion that currently exists over the statutory
definition of a pattern of racketeering activity. The Eighth
Circuit has adopted the most restrictive approach among
the circuit courts that have considered this issue and has
done so in a case where the trial court’s detailed findings
clearly demonstrate that numerous victims were injured
by the same or sirnilar criminal acts over an extended period
of time. By granting this Petition, the Court can resolve
the uncertainty that has fractured the federal courts and
frustrated RICO litigants since Sedima.
19
B. The Holmberg Decision Threatens to Create Different
Standards of Reviev’; One for Civil RICO and One for
Criminal RICO.
The Holmberg decision is also a dramatic departure from
the Supreme Court’s prior holdings and creates two different
standards of review: one for criminal RICO and one for
civil RICO.
A “pattern” under criminal RICO need not be proved by
evidence of multiple schemes. A criminal RICO violation
is proved by evidence of the requisite number, i.e. two
racketeering acts related to the affairs of an enterprise.
Turkette, 452 U.S. at 583; United States v. Weatherspoon,
581 F.2d 595, 602 (7th Cir. 1978 ). It is well-established that
criminal cases do not require racketeering acts to be related
to each other and do not require multiple criminal schemes
in order to support a conviction. United States v. Tom, 787
F.2d 65, 68 (2d Cir. 1986); United States v. Aleman, 609
F.2d 298, 304 (7th Cir. 1979); United States v. Davis, 576
F.2d 1065, 1067 (3d Cir. 1978); United States v. Elliott,
571 F.2d 880, 899 n. 23 (Sth Cir. 1978); United States v.
Dean, 647 F.2d 779, 787 (8th Cir. 1981). The multiple
scheme requirement articulated in Holmberg has not been
applied in a criminal RICO setting by any courts that have
considered the issue. Thus, there are two different standards.
The multiple scheme test, as adopted in Holmberg, is
contrary to the teachings of Sedima and Turkette and is
based on the notion that civil RICO shouid be limited to
situations where the defendant’s criminal activity is so ex-
tensive that it could only be implemented by professional
criminals. Thus, the Holmberg court complained that there
was no evidence that the defendant was engaged “. . . in
other criminal activities.” Holmberg, 800 F.2d at 210.
2
The Eighth Circuit referred to the-defendant’s forgeries and
other fradulent activities as “. . . in one sense . . . a misguided
attempt. . . .” 7d. Unfortunately, every criminal endeavor
is “in one sense a misguided attempt.” That hardly distin-
guishes the respondent in the present case from a common
criminal and does not entitle his criminal conduct to a
standard of review that is different from that of any other
criminal — professional or otherwise.
In Sedima, this Court made it clear that RICO applied
equally to “misguided” businesspersons who act criminally
and professional criminals. The Court held:
Congress wanted to reach both ‘legitimate’ and ‘illegiti-
mate’ enterprises . . . the former enjoy neither an
inherent capacity for criminal activity nor immunity
for its consequences. -
Sedima, 105 S.Ct. at 3287.
The question of whether there should be a different
standard for fraudulent businesspersons has been answered
in Sedima. The Holmberg decision would do indirectly that
which the Court in Sedima expressly rejected: an exception
for “misguided” but nevertheless fraudulent conduct per-
petuated by otherwise “legitimate” businesspersons. Sedima,
105 S.Ct. at 3285.
Application of the related multiple scheme test in situa-
tions like Holmberg severely weakens both civil and criminal
enforcement of RICO. The Holmberg rationale undermines
Congress’ purpose, conflicts with the language of the statute
and is inconsistent with this Court’s holdings in Turkette
and Sedima.
21
CONCLUSION
The Supreme Court recognized the need for a meaningful
definition of “pattern” when it issued its decision in Sedima.
Now that the issue is squarely before it on the basis of a
complete record after a trial on the merits, the Court has the
opportunity to resolve an extremely important question of
statutory interpretation. In terms of the number of courts
and litigants affected this may be one of the more significant
petitions for certiorari that the Court will be asked to con-
sider this term. Petitioner speaks for a great many other
participants in the judicial system in respectfully praying
that a Writ of Certiorari issue to review the judgment and
opinion of the United States Court of Appeals for the Eighth
Circuit entered in the above-entitled proceeding on Sep-
tember 3, 1986.
Respectfully submitted,
Joseph W. Anthony
1350 International Centre
900 Second Avenue South
Minneapolis, MN 55402
(612) 349-6969
Attorney for Petitioner
Douglas A. Holmberg
Of Counsel
FRUTH & ANTHONY, P.A.
Robert L. Lazear
1350 International Centre
Minneapolis, MN 55402
(612) 349-6969
APPENDIX
A-1L
APPENDIX
United States Court of Appeals
For The Eighth Circuit
No. 85-5138
Douglas A. Holmberg,
Appellee,
v.
Rodney C. Morrisette and Mintex Corporation, a Minne-
sota corporation,
Appellants.
Appeal from the United States District Court
for the District of Minnesota
No. 85-5221
Douglas A. Holmberg,
Appellee,
v.
Rodney C. Morrisette and Mintex Corporation, a Minne-
sota corporation,
Appellants.
A-2
Appeal from the United States District Court
for the District of Minnesota
Submitted: December 10, 1985
Filed: September 3, 1986
Before ROSS, Circuit Judge, BRIGHT, Senior Circuit
Judge, and BOWMAN, Circuit Judge.
BOWMAN, Circuit Judge.
This appeal is from a judgment entered after a bench
trial finding defendants Rodney C. Morrisette and Mintex
Corp. (Mintex) liable for treble damages under the Organ-
ized Crime Control Act of 1970, Title IX (Racketeer
Influenced and Corrupt Organizations), 18 U.S.C. §§ 1961-
1968 (as amended) (RICO), and for actual and punitive
damages under two common-law counts for fraud and
conversion for submitting falsified documentation to draw
down a letter of credit provided by Douglas A. Holmberg,
the plaintiff in this action. The District Court awarded
Holmberg $375,000 in damages, $4,478 in costs, and
$35,383 in attorneys’ fees. We affirm the District Court’s
finding of liability for actual and punitive damages on the
fraud and conversion claims. We reverse the finding of
liability on the RICO claim and the award of attorneys’
fees, and remand for a determination of the amount of
damages Holmberg should recover with respect to his state
law claims.
I.
This case arose from a series of business transactions
between an American manufacturer, an American exporter.
and a Nigerian buyer. Mintex, a Minnesota corporation,
produces wall plaques and other commemorative materials.
A-3
Morrisette, a Florida resident, is president of and holds
fifty percent of the shares of Mintex. Trans World Services,
Inc. (Trans World) is a Minnesota corporation engaged
in export trading. Typically, Trans World provided security
for its purchases of goods-by obtaining a letter of credit
from a third party, such as plaintiff Douglas A. Holmberg -
in this case. Trans World would be the initial beneficiary of
the letter of credit, but then would transfer it to the benefit
of a domestic supplier to secure the transaction. If the
buyer did not pay Trans World for the goods and Trans
World in turn did not pay the supplier, the latter could
use the letter of credit to obtain payment.
In September and October 1981, Mintex agreed to
supply Trans World with certain commemorative plaques
destined for shipment to a Nigerian importer, G.N.A.
Hamzer & Co. (Hamzer). Trans World was to secure the
purchase with a letter of credit, but Mintex reserved the
right to accept or reject the terms of the letter of credit. In
September, Holmberg agreed to furnish Trans World a
letter of credit for $125,000 in exchange for a portion of
Trans World’s profits on its sales of the plaques. In October,
Holmberg bought an irrevocable, unconditional, and trans-
ferable letter of credit naming Trans World as the bene-
ficiary.
Trans World soon began placing orders with Mintex. By
mid-December, Mintex had produced $65,232 worth of
plaques that were shipped to Hamzer in Nigeria. From
February 1982 through May 1982, Mintex produced
$264.021 worth of goods that Trans World shipped to
Wood Dale, Illinois for storage. Mintex lacked purchase
orders from Trans World for $112.956 of these goods, and
$71.540 of the goods were designated for RJC Enterprises,
of which Morrisette was a part owner.
A-4
Holmberg’s first letter of credit expired in April 1982
without being cashed. In July, Trans World requested and
Holmberg provided another $125,000 letter of credit desig-
nating Trans World as the beneficiary. Trans World for-
warded the letter of credit to defendants, who requested
an alteration in the terms of the letter of credit. Rather than
requiring an ocean bill of lading. Morrisette wanted to
change the terms to “any bill of lading.” The parties finally
compromised on allowing either an air or ocean bill of
lading. Payment on the letter of credit was predicated on
shipment of the goods to Hamzer, which was completely at
Trans World’s discretion, and defendants could not draw
down the letter of credit until a fixed time after the goods
had been shipped. Trans World could decide. for whatever
reason, not to ship the goods to Hamzer and not to pay
Mintex, leaving Mintex without recourse against the letter
of credit.
In August, Trans World agreed to transfer Holmberg’s
letter of credit to Mintex as beneficiary and to name Mintex
as beneficiary on a $25,000 letter of credit that Gilbert
Watson obtained from a Minnesota bank. In late August.
Mintex sent a letter through the United States mail to
Holmberg’s bank in Miami, Florida requesting transfer of
the letter of credit from Trans World to Mintex. Morrisette
and the Miami bank had at least one telephone conversa-
tion concerning this transfer. In September, defendants sent
a request via Federal Express to Holmberg’s bank request-
ing payment of the letter of credit. The documents sub-
mitted by them indicated that $193.964 worth of plaques
had been manufactured and shipped to Hamzer in October
and November 1981. The bank concluded that the docu-
ments complied with the letter of credit and paid Mintex
$125,900.
A-5.
In fact, the documents were false and misleading. Trans
World had shipped only $65,232 worth of goods to Hamzer
by September 1982, and this was known to Mintex. Hamzer
was a customer of Trans World, not Mintex, and thus
owed Trans World for the goods shipped. Hamzer certainly
did not owe Mintex the $193 964 claimed on the documents
accompanying the letter of credit. Morrisette admitted at
trial that the corresponding invoices designating Hamzer
rather than Trans World as the buyer were not created
until August or September 1982, though Mintex back-dated
them to October and November 1981. Moreover, the at-
tached air bills of lading did not correspond to the invoices,
but had been altered to conceal the actual amount of goods
shipped so that no one would notice the discrepancy in
dollar value-between the invoices and the air bills.
Mintex also drew down two other letters of credit related
to the transactions at issue here. In September 1981, Peter
DeJongh purchased a $25,000 letter of credit through a
Minnesota bank, Mintex eventually was made the bene-
ficiary of this letter of credit. and was entitled to draw
down upon it by presenting an ocean bill of lading showing
shipment of goods to Nigeria and associated invoices. In
June 1982, Morrisette requested and received payment of
this letter of credit in person by presenting invoices from
Trans World and bills of lading. As previously noted, in
August 1982, Mintex was also named the beneficiary of
Watson’s $25,000 letter of credit, which had been issued
to Trans World in August 1981. Between April and mid-
October 1982, Morrisette and Watson’s bank had numerous
telephone conversations and several exchanges of correspon-
dence through the United States mail concerning Mor-
risette’s efforts first to transfer and then to draw down Wat-
A-6
son’s letter of credit. On October 15, 1982, Morrisette pre-
sented the bank with documents showing shipment of over
$25,000 in goods and received $25,000 in payment.
Concurrent with these actions, on October 9, 1982, Min-
tex commenced a replevin action in Illinois to recover the
$264,021 worth of goods Trans World had stored in Wood
Dale. In its complaint, Mintex represented that it owned
the goods.
In his complaint in this case, Holmberg alleged that
Morrisette and Mintex had: (1) committed common-law
fraud in drawing down Holmberg’s letter of credit; (2)
converted Holmberg’s funds; (3) engaged in a pattern and
practice of racketeering activity in violation of RICO; and
(4) acted with willful indifference to Holmberg’s rights and
were therefore liable for punitive damages. He sought actual
damages of $125,000 under each of the first two counts.
He also claimed the same amount under the RICO count,
which would be trebled under that statute to $375,000.
Finally, Holmberg sought punitive damages as well as at-
torneys’ fees, costs, and interest.
After a bench trial, the District Court concluded that
Holmberg had prevailed against defendants on ail four
counts of the complaint. As to the common-law fraud claim,
the court concluded that defendants fraudulently collected
payment on Holmberg’s letter of credit “by knowingly pre-
senting materially false and misleading documents to
[Holmberg’s b]ank with the intent that the bank would rely
on the false documents to pay the proceeds of Holmberg’s
1We note that the value of the goods to Mintex, absent shipment to
Hamzer, would have been only a small fraction of the invoiced
price. These goods consisted of commemorative plaques for use in
connection with a specific Nigerian presidential election and their
value depended on the timeliness of their delivery to Nigeria.
Ae?
[letter of credit]. The .. . [b]ank did rely on the presented
documents and, as a result, paid out on Holmberg’s [letter
of credit],” thereby damaging Holmberg. Holmberg v. Mor-
risette, No. 3-83-1383, at 23 (D. Minn. Feb. 1, 1985). The
District Court similarly found that defendants’ presentation
of fraudulent documents to Holmberg’s bank constituted a
conversion of Holmberg’s funds. Damages were set at
$125,000 for each count plus costs, attorneys’ fees, and
interest. The District Court also found that defendants had
acted with willful indifference to Holmberg’s rights and that
Holmberg was entitled to $250,000 in punitive damages.
The District Court found defendants liable under RICO
for conducting a pattern of racketeering predicated on mail
and wire fraud. The District Court specifically relied on
defendants’ having obtained payment of the Holmberg,
Watson, and DeJongh letters of credit by using the United
States mail to submit fraudulent documents and a telephone
to make communications in connection with those transac-
tions. On the RICO claim, the court awarded Holmberg
$375,000 (treble damages) plus costs, attorneys’ fees, and
interest. The court then concluded that Holmberg’s damages
under the RICO claim subsumed his damages under the
fraud, conversion, and punitive damages claims and thus
finally awarded Holmberg a total of $375,000 in damages,
$4,478 in costs, and $35,181 in attorneys’ fees. The court
noted that should the RICO award be overturned on appeal,
the damages on the fraud and conversion claims should be
awarded only to the extent that they are not duplicative.
Defendants now assert numerous grounds for reversing
all or part of the District Court’s judgment. They first con-
tend that the District Court erred in finding liability under
RICO because Holmberg failed to prove defendants engaged
A-8
in mail or wire fraud. They also assert that even if Holmberg
proved the necessary acts under 18 U.S.C. § 1961, those
acts do not amount to a pattern of racketeering as required
under RICO.” Defendants next argue that the District
Court’s finding that they fraudulently drew down Holm-
berg’s letter of credit is clearly erroneous. Moreover, they
contend that the District Court should have barred Holm-
berg’s claim under the clean hands doctrine. Defendants
further assert that, as a matter of law, Holmberg was not
entitled to punitive damages. Finally they argue that
Holmberg was not entitled to attorneys’ fees under either
the RICO or the common-law claims.*
II.
A.
Defendants contend that Holmberg failed to prove that
they engaged in a pattern of racketeering activity as required
under RICO, 18 U.S.C. § 1962(c).* We agree. A violation
of section 1962(c) “requires (1) conduct (2) of an enter-
prise (3) through a pattern (4) of racketeering activity.”
2Defendants raised several other RICO issues in their briefs which, as
they later conceded, the Supreme Court since has decided adversely
to them in Sedima, S.P.R.L. v. Imrex Co., 105 S. Ct. 3275 (1985).
We do not address those issues.
3In a related argument, defendants contend that the trial judge should
have recused himself from determining attorneys’ fees because his
son was an associate in the law firm representing Holmberg. This
issue is mooted by our decision that the District Court erred in holding
that Holmberg is entitled to attorneys’ fees, so we do not address
the merits. We observe in passing that the District Court appears to
have complied with the applicable law. See United States ex rel.
Weinberger v. Equifax, Inc., 557 F.2d 456, 463-64 (Sth Cir. 1977),
cert. denied, 434 U.S. 1035 (1978).
4Defendants also argue that Holmberg failed to prove they committed
two or more acts of mail or wire fraud. We do not reach this argu-
ment because of our disposition of the RICO “pattern of racketeering
activity” issue.
ERROR HY
A-9.
Sedima, S.P.R.L. v. Imrex Co., 105 S. Ct. 3275, 3285
(1985) (footnote omitted). Assuming that Holmberg
established that defendants engaged in “conduct of an enter-
prise” and that the conduct amounted to “racketeering ac-
tivity,” we nevertheless believe that defendants’ actions do
not constitute the requisite “pattern” of racketeering
activity.
This Court thoroughly discussed the parameters of “pat-
tern” in Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir.
1985). In Superior Oil, we held that several related acts of
mail and wire fraud as part of a single scheme to divert
natural gas from Superior Oil’s pipeline did not amount to
a pattern of racketeering activity. There was no evidence
suggesting that such activities had occurred previously or
that the individuals involved were engaged in other criminal
activities. Jd. t 257. We believe that the present case is
legally indistinguishable from Superior Oil.
Under RICO, a pattern “requires at least two acts of
racketeering activity, one of which occurred after the effec-
tive date of this chapter and the last of which occurred
within ten years . . . after the commission of a prior act of
racketeering activity... .” 18 U.S.C. § 1951(5). Congress
further expressed its views of the interrelationship necessary
for actions to constitute a pattern:
The concept of “pattern” is essential to the operation
of the statute... . The target of [RICO] is .. . not
sporadic activity. The infiltration of legitimate business
normally requires more than one “racketeering ac-
tivity” and the threat of continuing activity to be
effective. It is this factor of continuity plus relationship
which combines to produce a pattern.
A-10
S. Rep. No. 617, 91st Cong. 2d Sess. 158 (1969), quoted
in United States v. Dean, 647 F.2d 779, 792 n.32 (8th Cir.
1981), cert. denied, 456 U.S. 1006 (1982). The Supreme
Court cited this report in Sedima, 105 S. Ct. at 3285 n.14,
prefacing it with the observation that “[t]he implication is
that while two acts are necessary, they may not be sufficient.
Indeed, in common parlance two of anything do not gen-
erally form a ‘pattern.’ The legislative history supports the
view that two isolated acts of racketeering activity do not
constitute a pattern.” Jd. The Court went on to note that
the sponsor of the Senate bill pointed out that “pattern”
requires a relationship between the actions. /d. (citing 116
Cong. Rec. 18940 (1970) (statement of Sen. McClellan) ).
Elsewhere in the Omnibus Crime Control Act of 1970,
Congress provided that “criminal conduct forms a pattern
if it embraces criminal acts that have the same or similar
purposes, results, participants, victims, or methods of com-
mission, or otherwise are interrelated by distinguishing
characteristics and are not isolated events.” 18 U.S.C. §
3575(e). The Supreme Court expressly approved use of
this definition as an aid to interpreting “pattern” under
RICO. Sedima, 105 S. Ct. at 3285 n.14.
We assume for purposes of our review that Holmberg
proved that defendants committed acts of wire or mail
fraud related to a common purpose or scheme. Our review
of the record convinces us, however, that Holmberg has
failed, as a matter of law to prove the continuity necessary
to form a “pattern” of racketeering activity. Defendants’
actions comprised one scheme to draw down the three letters
of credit securing Mintex’s transactions with Trans World
with respect to goods specially produced by Mintex for
shipment to Nigeria. In one sense, defendants’ actions were
A-11
a misguided attempt to obtain payment for goods which
they had produced, yet over which they had lost control.
There was no evidence that Mintex or Morrisette had en-
gaged in like activities in the past or that they were engaged
in other criminal activities. As we observed in Superior Oil,
“Tilt places a real strain on the language to speak of a
single fraudulent effort, implemented by several fraudulent
acts, as a “pattern of racketeering activity.” ’” 785 F.2d at
257 (citing Northern Trust Bank/O’Hare, N.A. v. Inryco,
Inc., 615 F. Supp. 828, 931 (N.D. Ill. 1985)) (footnote
omitted). Thus we reverse the judgment for Holmberg on
his RICO claim.
B.
Defendants argue that the District Court erred in con-
cluding that Morrisette fraudulently drew down Holmberg’s
letter of credit. In support of their argument, they contend
that Holmberg wrongfully changed the letter of credit from
a “sales” to a “stand-by” letter of credit. Defendants also
argue that the nature of the letter of credit was ambiguous
and that this ambiguity should be construed against Holm-
berg, who gave his bank specific language to be included
in the document and who in that respect was the draftsman
of the instrument. In addition, they assert that the arrange-
ment between Trans World and Holmberg, including Holm-
- berg’s alleged power to approve or authorize the shipment
of goods to Nigeria, constituted a joint venture. Accord-
ingly, defendants argue that Holmberg cannot take refuge
behind the letter of credit, since he was liable to them as a
purchaser of the goods. They urge this Court to look beyond
the form of the transaction and to consider the purpose of
the letter of credit, which was to preserve the beneficiary’s
A-12.
(Mintex’s) right to payment for the goods it produced and
sold to Trans World.
We may review de novo the District Court’s determina-
tion that the facts as he found them constituted actionable
fraud. Because the elements of common-law fraud are a
matter of state substantive law, we look to the law of Min-
nesota. Hanson v. Ford Motor Co., 278 F.2d 586, 590 (8th
Cir. 1960). Applying Minnesota law to the facts of this
case, we agree with the District Court that Holmberg estab-
lished all the elements of the tort of fraud. Davis v. Re-Trac
Manufacturing Corp., 149 N.W.2d 37, 38-39 (Minn. 1967),
citing Hanson, 278 F.2d at 591. Defendants knowingly
made material, false representations about past and present
facts, intending that Holmberg’s bank act upon those repre-
sentations by making payment upon Holmberg’s letter of
credit. The bank accepted the falsified documents that
defendants presented and in reliance on them paid defend-
ants $125,000. Accordingly, Holmberg, who then was obli-
gated to repay the bank suffered injury that was the proxi-
mate result of defendants’ intentional misrepresentations.
Whatever ambiguity there may have been in the terms of
Holmberg’s letter of credit, it could not provide a sufficient
justification for submitting falsified documents to draw
down the letter of credit. The same conclusion applies to
defendants’ argument that Trans World and Holmberg were
engaged in a joint venture and also to their argument calling
upon us to look to the purpose of the letter of credit. The
District Court specifically found that Trans World, Holm-
berg, and Hamzer did not constitute a joint venture, a find-
ing that is not clearly erroneous. Moreover, even if we
assume that the joint venture and purpose arguments are
correct, at most they would suggest that defendants had a
A-13
cause of action against Trans World and Holmberg for the
price of the goods; they cannot shield defendants from lia-
bility for the fraud they committed in wrongfully obtaining
payment on the letter of credit. We therefore affirm the
judgment in Holmberg’s favor on his fraud and°conversion
claims. ;
as
In a closely related contention, defendants assert that
the District Court erred in not barring Holmberg’s claims
as a matter of law under the clean hands doctrine. The
District Court found that Holmberg acted in good faith and
did not have unclean hands. These are factual findings. Our
review of the record satisfies us that they are mot clearly
erroneous. Thus, we need not explore the interesting ques-
tion, which the parties did not raise, of whether Minnesota
law permits application of the clean hands doctrine, tra-
ditionally an equitable defense, in an action at law for
money damages. See generally D. Dobbs, Law of Remedies
45-47 (1973).
D.
Defendants contend that Holmberg is not entitled to puni-
tive damages. Under Minnesota law punitive damages are
allowable in civil actions “only upon clear and convincing
evidence that the acts of the defendant show a willful indif-
ference to the rights or safety of others.” Minn. Stat. §
549.20(1). The statute adds that any award of punitive
damages is to be measured by a series of factors bearing on
the purpose of punitive damages, including the profitability
to the defendant of his conduct, the duration of the conduct,
the financial condition of the defendant, and the total effect
A-14
of other punishment imposed on the defendant (e.g., actual
damages, costs and attorneys’ fees). Jd. § 549.20(3). In
this context, the Minnesota Supreme Court has held that
“[iJn reviewing an order of the trial court, we are confined
to an examination of the record to ascertain whether there
is evidence to sustain the judge’s action.” Melina v. Chaplin,
327 N.W.2d 19, 20 (Minn. 1982).
In the present case, we find there is substantial evidence
in the record to support the District Court’s determination
that punitive damages are allowable. We are concerned,
however, that the amount of the punitive damage award may
be excessive, and especially so in view of our reversal of the
judgment for Holmberg on his RICO claim. Accordingly,
on remand the District Court should reconsider the amount
of the punitive damage award in light of this opinion and
the statutory factors.
E.
Defendants argue that the District Court erred in grant-
ing Holmberg’s request for attorneys’ fees. We agree. The
District Court awarded attorneys’ fees under the RICO
claim and also under the state law fraud and conversion
claims. Obviously, in light of our prior disposition of the
RICO claim, Holmberg is not entitled to attorneys’ fees
under 18 U.S.C. § 1964(c). Because under our decision
Holmberg has prevailed only on his state law claims, we
look to Minnesota law to resolve the issue of attorneys’
fees. See United States ex rel. Garrett v. Midwest Construc-
tion Co., 619 F.2d 349, 353 (Sth Cir. 1980).
The Minnesota Supreme Court long and consistently has
held “that attorney fees are not recoverable in litigation
Als.
unless there is a specific contract permitting or a statute
authorizing such recovery.” Barr/ Nelson, Inc. v. Tonto’s,
inc., 336 N.W.2d 46, 53 (Minn. 1983); Jacobs v. Rose-
mount Dodge-Winnebago South, 310 N.W.2d 71, 79 (Minn.
1981). Holmberg has not referred us to any contract or
statute (other than RICO) authorizing his recovery of at-
torneys’ fees. The District Court’s judgment does not indi-
cate on what basis or under what authority attorneys’ fees
were awarded with respect to the state law claims. Accord-
ingly, we do not see any basis for departing from the Minne-
sota Supreme Court’s traditional rule, and therefore we
reverse the award of attorneys’ fees to Holmberg.
Ill.
For the reasons set forth above, we reverse the District
Court’s judgment for Holmberg on the RICO claim and ‘the
award of attorneys’ fees. We affirm the District Court’s
finding of liability on the fraud, conversion, and punitive
damages claims, and we remand the case for a new determi-
nation of the damages that Holmberg should recover on
those claims. In so doing, we note that a recovery of com-
pensatory damages on both the fraud and conversion claims
clearly would be duplicative and should not be allowed.
Holmberg has suffered only one injury — the wrongful
drawing down of his letter of credit — and is entitled to
be compensated for that injury only once. Similar reason-
ing applies to the question of punitive damages on both the
fraud and conversion claims. Fraud and conversion are
separate legal theories of liability, but in reality defendants
have injured Holmberg only once. Accordingly. they are
to be punished only once, not as many times as there are
separate legal theories that have been found to fit the case.
A-16.
Affirmed in part, reversed in part, and remanded.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS,
EIGHTH CIRCUIT.
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
THIRD DIVISION
Douglas A. Holmberg,
Plaintiff,
VS.
Rodney C. Morrisette and Mintex Corporation, a Minne-
sota corporation,
Defendants.
FINDINGS OF FACT, CONCLUSIONS OF LAW,
ORDER FOR JUDGMENT, AND MEMORANDUM
Civil No. 3-83-1383
The above-entitled matter was tried before the under-
signed on November 26, 1984 through December 6, 1984.
Joseph W. Anthony of Larkin, Hoffman, Daly and Lind-
gren appeared on behalf of plaintiff Douglas A. Holmberg.
Stephen J. Peatty of Hessian, McKasy and Soderberg ap-
peared on behalf of defendants Mintex Corporation and
Rodney C. Morrisette.
Based upon the oral testimony, documentary evidence,
A-17
arguments of counsel and entire file, the Court enters its
Findings of Fact, Conclusions of Law and Order for
Judgment as follows:
FINDINGS OF FACT
1. Plaintiff Douglas A. Holmberg (“Holmberg”), a
resident of the State of Florida, is employed as a junior high
school teacher and is the owner and operator of three citrus
tree nurseries.
2. Defendant Mintex Corporation (“Mintex”) is a
Minnesota corporation which produces and manufacturers
wall plaques and other recognition and commemorative
materials, for sale and shipment in interstate and foreign
commerce.
3. Defendant Rodney C. Morrisette (“Morrisette”), a
resident of the State of Florida, is employed as a Republic
Airlines pilot, and is the president and fifty percent (50% )
shareholder of defendant Mintex Corporation.
4. In March or April of 1981, Holmberg was introduced
to TransWorld Services, Inc. (“TWS”), a Minnesota cor-
poration engaged in the business of export trading.
5. TWS had two major foreign customers located in
Nigeria — Amoje Trading Co. and G.N.A. Hamzer and
Co. (“Hamzer”). TWS’ business consisted mainly of buy-
ing goods in the United States and exporting them to buyers
in foreign countries, particularly Nigeria. TWS would
secure a purchase by obtaining a letter of credit (LC) from
an outside party such as Holmberg. TWS would be the
named beneficiary under the LC. TWS would then transfer
the LC to the benefit of a domestic supplier to secure the
transaction.
A-18
6. Using an LC, TWS would then purchase the goods
and sell them to customers in Nigeria. The goods would be
shipped to Nigeria under terms that required the Nigerian
importer to pay within thirty (30) to sixty (60) days after
receiving the goods. If the Nigerian importer did not pay
for the goods after receiving them, and if TWS did not pay
the supplier, the domestic supplier would have the lender’s
LC as security for the purchase by TWS. If the domestic
supplier met the terms of the LC it could “draw down”
the LC to obtain payment.
7. Sometime before September 18, 1981, plaintiff was
advised by his banker that such an LC transaction in which
plaintiff would guaranty the performance of TWS involved
“considerable risk.”
8. On September 18, 1981, Holmberg entered into a
“Loan Agreement” with TWS in which Holmberg agreed
to provide an LC to TWS. Holmberg had had no experience
with this type of LC, nor had he had experience in exporting
or importing.
9. According to the Loan Agreement, Holmberg as
“lender” was to provide certain “collateral” to TWS. This
collateral (the LC) would insure payment to domestic
manufacturers or suppliers of goods who sold to TWS.
10. Asconsideration for providing the LC, TWS agreed
to pay Holmberg a “domestic fee.” The fee was forty
percent (40%) of TWS’ profit on goods purchased from
domestic manufacturers and suppliers for which plaintiff
Holmberg’s LC was used to insure payment. TWS’ profit
was seventy-five percent (75% ) of its gross markup over
the domestic vendor’s price.
A-19
11. The Loan Agreement also provided that if TWS
received additional income from an importer of goods
shipped against Holmberg’s LC, Holmberg would receive
a “foreign fee” equal to forty percent (40%) of TWS’
“foreign profit.” TWS’ “foreign profit” was seventy-five per-
cent (75%) of any additional income received by it from
the importer.
12. On October 6, 1981, Holmberg purchased an LC
of one hundred twenty-five thousand dollars ($125,000)
from the Southeast First National Bank of Miami (“South-
east Bank”). Holmberg designated TWS as the beneficiary.
TWS provided the language for the October 6, 1981 LC.
13. The October 6, 1981 LC was irrevocable, trans-
ferable and unconditional, and was identified as STBI099.
14. On October 6, 1981, Holmberg understood that
the beneficiary of his LC and any subsequent transferee
could draw down on the LC if its terms and conditions were
satisfied.
15. On September 3 and 4, and October 23, 1981,
TWS and Mintex entered into written agreements for TWS’
purchase of products from Mintex. Mintex and Morrisette
knew TWS would be selling to a buyer in Nigeria and that
TWS would be securing the purchases with an LC.
16. Inthe Purchase Agreement of September 3, 1981,
Mintex reserved the right to accept the LC supplied by TWS.
That agreement specifically provided as follows:
Conditions: Supplier reserves right to accept conditions
of Purchase order and Letter of Credit.
17. After executing the written agreements TWS began
placing purchase orders with Mintex. The purchase orders
were identified by export shipment order numbers. The first
number in the sequence was 115.01. TWS would submit
A-20.
its purchase order to Mintex, and upon receipt, Mintex’s
office manager would create a three part invoice using one
of Mintex’s preprinted form invoices. The preprinted in-
voices were numbered consecutively and each invoice num-
ber was preceded by a preprinted “M.” After the invo'ce was
prepared, one of the three parts would be given to produc-
tion. The two remaining parts would remain with the office
manager. After the purchase order was filled, one part of
the invoice would be mailed to the customer for payment;
one part would be used by the office manager to complete
the accounts receivable ledger card and would then be dis-
carded; and the third part would be filed in the customer’s
file.
18. Mintex maintained a file and an accounts receivable
ledger card for each of its customers. Mintex had a file
and an accounts receivable ledger card for TWS. It did
not have, and has never had, an accounts receivable ledger
card for Hamzer. -
19. Mintex made the following sales to TWS during
the months of October and November 1981:
Inv. Date Inv. No. Cust. PO Amount Ship Date Description!
10/21/81 M13998 notshown $ 1,266.00 notshown 033 Presiden-
tial Plaques
10/26/81 M1i3994 115.01 18,462.50 10/26/81 350-003
Plaques
\ (Presidental)
10/27/81 M13995 115.02 18,462.50 10/27/81 350-003
Presidential
Plaques
10/30/81 M13997 115.03 15,825.00 10/30/81 300-003
Presidential
Plaques
11/25/81 M14086 115.05 —_ 2,465.00 11/25/81 NPN Plaques
$56,481.00 TOTAL
1{Inv. Date — Invoice Date; Inv. No. — Invoice Number; Cust. PO —
Customer Purchase Order; Ship Date — Shipment Date].
A-21
20. As of November 25, 1981, Mintex was owed fifty-
six thousand four hundred eighty-one dollars ($56,481)
for goods TWS had purchased for shipment to Nigeria. The
products identified on Invoices ## M13998, M13394,
M13995, M13997, and M14086 were purchased by TWS
from Mintex and shipped to Hamzer in Nigeria.
21. From February 17, 1982 through May 31, 1982,
Mintex continued to sell goods to TWS. According to Min-
tex’s accounts receivable ledger card and invoices, Mintex
sold to TWS goods valued at two hundred sixty-four thou-
sand twenty-one dollars ($264,021) during this time. When
Mintex delivered the goods they were forwarded by truck
to West Wind Maritime in Wooddale, Illinois where they
were stored. :
22. The carriers billed all charges to TWS for shipment
of the goods manufactured by Mintex. The bills of lading
identified TWS as the shipper of the goods.
23. Of the two hundred sixty-four thousand twenty-one
dollars ($264,021) in goods sold by Mintex and shipped to
Wooddale, Mintex did not have purchase orders from TWS
for one hundred twelve thousand nine hundred fifty-five
dollars and fifty cents ($112,955.50).
24. Of the two hundred sixty-four thousand twenty-one
dollars ($264,021) in goods sold by Mintex seventy-one
thousand five hundred forty dollars ($71,540) of them were
sold to RJC Enterprises. Morrisette was an owner of RJC
Enterprises which was located in the Cayman Islands.
25. On May 31, 1982, the status of TWS’ account with
Mintex was as follows:
A-22
Mintex
Tws Invoice Mode of
Mintex P.O. Amount Shipped Transpor-
Date Number Number to TWS to tation
Air-
10/21/81 Mi3998 N/A 1,266.00 Nigeria Lufthansa
10/26/81 Mi13994 115.01 18,462.50 - ai
10/27/81 M13995 115.02 18,462.50 ‘5 9
10/30/81 M13997 115.03 15,825.00 vi -
11/25/81 M14086 115.05 2,465.00 “(i oi
12/17/81 M14152 8,750.75 cs .
1981 TOTAL $ 65,231.75
Truck-
2/17/82 M14437 115.04 $ 7,865.00 Chicago Britton
2/17/82 M14438 =115.08 7,865.00 3 .
2/17/82 Mi4439 =: 1115.12 5,005.00 24 .
2/17/82 M14440_—s: 1115.05 6,285.75 rd .
2/17/82 M14441 115.13 8,750.75 ’
2/17/82 M14442 115.17 8,750.75 ¢ ia
2/17/82 M14443 1115.21 1,355.75 7 .
2/17/82 M14466 =: 115.38* 35,000.00 - “
2/19/82 M14467 =: 1115.39* 36,540.00 af
3/3/82 M14469=-:1115.21 7,395.00 “3 2
3/3/82 M14470~—s—-:115.25 3,081.25 4 "
3/12/82 M14713 =: 1115.25 5,669.50 F *
3/12/82 M14714 115.29 616.25 . “¢
3/23/82 M14715_— 115.29 8,134.50 24 .
3/23/82 M14716 = i15 8,750.75 ? ”
3/12/82 M15164** None 102,602.50 . ,
3/23/82 M15165** None 10,353.00 . ss
1982 TOTAL $264,020.75
GRAND TOTAL $329,252.50
*Purchased by RJC Enterprises
**No purchase orders from TWS
26. On November 6, 1981 Holmberg’s LC #STB1099,
drawn to the benefit of TWS, was transferred to defendant
Mintex. LC #STB1099 was thereafter released to TWS,
reassigned, and retransferred to Mintex on March 31, 1982.
The transfer of the LC #STB1099 to Mintex by TWS
provided that it was of an “irrevocable, transferable, standby
letter of credit” and that “documents presented under this
transfer will be in the name of Mintex Corporation.” On
April 5, 1982, LC #STB1099 expired without being cashed.
2.
A-23
On July 19, 1982, TWS again asked Holmberg to ©
provide an LC of one hundred twenty-five thousand dol-
lars ($125,000.00). This LC was issued by the Southeast
Bank on July 19, 1982. It was numbered L03542 and des-
ignated TWS as the beneficiary.
28.
29.
LC #L03542 stated it was available for payment.
“... Upon presentation of your draft at sight drawn
on us, bearing the clause: ‘Drawn under Letter. of
Credit No., L03542 of Southeast Bank, N.A.’ and
accompanied by the following documents:
1. Statement purportedly signed by you stating
as follows: ‘Amount claimed is due us from GNA
Hamzer Co. as invoices. have not been paid bene-
ficiary, or domestic manufacturer or, suitable ar-
rangements made within 120 days after date of
shipment from U.S. port as evidence by the on-
board date of ocean bill of lading showing the
shipment of product as determined by TransWorld
Services, Inc. on authorization of lender.’
2. Copy of on-board ocean bill of lading dated
at least 120 days prior to drafts presented under
this contract.
3. Copy of invoice(s) in amounts equal to or
greater than drawings under this credit and dated
at least prior to drafts presented under this credit.”
On or about July 19, 1982, Holmberg caused the
LC to be mailed to John Hamilton, an officer of TWS.
30.
Hamilton, in his capacity as an officer of TWS,
mailed Holmberg’s LC #L03542 through the United States
mails to Mintex and Morrisette.
A-24
3. After Morrisette received LC #L03542 he met with
one Peter Cozzetto and one Richard Ludgate to review
its terms. That meeting occurred in late July 1982, at
which time Cozzetto advised Morrisette that the LC could
not be drawn down unless an ocearr bili of lading was pre-
sented with the documents. Both Cozzetto and Ludgate
were familiar with export trade and the use of LC’s.
32. As of July 31, 1982, Mintex had not shipped any
goods by ocean and did not possess any ocean bills of
lading.
_ 33. After meeting with Cozzetto and Ludgate, Mor-
risette telephoned and made personal visits to Hamilton
asking Hamilton to obtain Holmberg’s consent to amend
the LC to allow Mintex to draw down on the LC by pre-
senting “any bill of lading.”
34. Both Hamilton and Holmberg rejected Morrisette’s
request to amend the LC to permit presentment of any bill
of lading. Hamilton then telephoned Holmberg and obtained
Holmberg’s agreement to amend LC #L03542 to include
presentment of air as well as ocean bills of lading.
35. On August 4, 1982, TWS entered into a written
agreement with Mintex to transfer LC #L03542 to the
benefit of Mintex. On that date, TWS also agreed to name
Mintex as beneficiary on an LC of twenty-five thousand
dollars ($25,000) from one Gilbert Watson. As a part of
the agreements to obtain Holmberg and Watson’s LCS,
Mintex agreed as follows:
“August 4, 1982
3. Mintex Corporation for its part, agrees not to
affect a drawn down on either Letter of Credit prior
A-25.
to sixty (60) days of this date or before the time stip-
ulated in the Letter of Credit itself, which ever period
is longest.”
36. Mintex, Morrisette, and TWS signed one of the
above-described agreements on August 5, 1982. Morrisette
was aware of the agreement’s time limits on the drawing
down of Holmberg’s LC.
37. Holmberg relied on the August 4, 1982 agreement
when he permitted the amendment to LC #L03542 authoriz-
ing the presentment of air or ocean bills of lading to the
bank.
38. Pursuant to the agreement between TWS and Min-
tex, on August 20, 1982, TWS, the then beneficiary of LC
#L03542, instructed the Southeast Bank to amend the LC
to name Mintex the beneficiary. TWS’ transfer instructions
permitted invoice substitution providing:
“The transferee’s draft and documents are to be applied
to the terms and conditions of the credit and any
amendments in lieu of our draft and documents.”
39. On August 25, 1982, on behalf of Mintex Corpo-
ration, Morrisette sent a letter through the United States
mails to Southeast Bank requesting the transfer of Holm-
berg’s LC from TWS to Mintex.
40. Morrisette had telephone communications with a
representative of the Southeast Bank about obtaining a
transfer of Holmberg’s LC from TWS to Mintex.
41. On August 31, 1982, the Southeast Bank advised
TWS and Mintex that it could not process the transfer
application because an improper form had been used. The
A-26
Southeast Bank, then returned the transfer application, the
LC, and another form.
42. On September 7, 1982, TWS executed the trans-
fer form and delivered to Mintex a copy of the transfer, a
letter from Hamilton, and a copy of a letter from Patricia
King, Corporate Secretary of TWS, to the Southeast Bank.
43. The letter to Mintex from Hamilton acknowledged
that the “standby” LC had been transferred to Mintex and
recited that: “It is understood that your documents pre-
sented under this transfer will be in the name of Mintex
Corporation.” A copy of this letter was sent to Holmberg
by TWS, and to the Southeast Bank, along with the trans-
fer form dated September 7, 1982.
44. On September 9, 1982, Holmberg’s LC #L03542
was transferred and assigned to Mintex, naming Mintex
Corporation as the beneficiary of the LC. The terms of the
LC #L03542 then provided that the LC could be drawn
down:
“.. . Upon presentation of your draft at sight drawn
on us, bearing the clause: ‘Drawn under Letter of
Credit No. L03542 of Southeast Bank, N.A.’ and ac-
companied by the following documents:
1. Statement purportedly signed by you stating as
follows: ‘Amount claimed is due us from GNA Ham-
zer Co. as invoices have not been paid beneficiary,
. Or domestic manufacturer, or suitable arrange-
ments made within 120 days after date of shipment
from U.S. port as evidenced by the on-board date of
air or ocean bill of lading showing the shipment of
product as determined by Trans World Services, Inc.
on authorization of lender.’
A:27
2. Copy of on-board air or ocean bill of lading dated
at least one hundred twenty (120) days prior to
drafts presented under this contract.
3.
Copy of invoices(s) in amounts equal to or greater
than drawings under this credit and dated at least
prior to drafts presented under this credit.”
45. On September 14, 1982, Mintex and Morrisette
sent a letter by Federal Express to the Southeast Bank to-
gether with enclosures requesting payment of Holmberg’s
LC #L03542. In support of the request to cash the LC,
Morrisette and Mintex supplied the following documents
to the Southeast Bank:
2B
2.
A draft/direct collection letter.
A site draft in the amount of one hundred twenty-
five thousand Dollars ($125,000);
A statement as follows:
Amount claimed is due us from G.N.A. Ham-
zer Co. as invoices have not been paid beneficiary,
or domestic manufacturer, or suitable arrange-
ments made within 120 days after date of ship-
ment from U.S. port as evidence by the on-board
date of air or ocean bill of lading showing ship-
ment or product as determined by TransWorld
Services, Inc., on authorization of lender.
Invoice Nos. 2640/S1, 2641/S1, 2642/82,
2643/S1, together with certified copies of original
air bills of lading allegedly showing the shipment
of goods to Nigeria.
A228
46.The invoices that were mailed by Mintex and Mor-
risette to the Southeast Bank contained the following in-
formation:
Inv. Date Inv.No. Cust.PO Amount Ship Date Description?
10/26/81 2640/S1 115.01 $ 60,146.20 10/26/81 2.150 PCS.
(70 Bundles)
Wall Plaques
10/27/81 2641/S1 115.02 60,072.30 10/27/81 2,147 PCS.
(70 Bundles)
Wail Plaques
10/30/81 2641/81 115.03 69,558.25 10/30/81 1,780 PCS.
(58 Bundles)
Wall Plaques
11/25/81 2643/S1 115.05 4,187.90 11/25/81 100PCS.
(8 Boxes)
Wall Plaques
$193,964.00 TOTAL
47. The Southeast Bank, relying on the documents pre-
sented, cashed Holmberg’s LC and paid Mintex one hun-
dred twenty-five thousand dollars ($125,000) which it
wired to Mintex’s account at the Eden Prairie State Bank
of Eden Prairie, Minnesota on September 14, 1982.
48. As of September 14, 1982 TWS had made no
payments to Mintex for any of the goods produced and
delivered for shipment to TWS by Mintex. Mintex had
complied with the terms of its agreements with TWS and
was entitled to payment from TWS at this time.
49. The invoices submitted to the Southeast Bank, al-
though dated October and November 1981, were not cre-
ated until August or September of 1982. The invoices were
created for the purpose of cashing Holmberg’s LC.
50. In presenting LC # L03542 to the Southeast Bank
for draw down on September 14, 1982, Mintex and Mor-
*{Inv. Date — Invoice Date; Inv. No. — Invoice Number; Cust. PO —
Customer Purchase Order; Ship Date — Shipment Date]
A-29
risette represented that Hamzer owed Mintex one hundred
ninety-three thousand nine hundred sixty-four dollars and
sixty-five cents ($193,964.65).
51. According to Mintex’s own acocunts receivable
ledger, no amount was due and owing to Mintex from Ham-
zer on September 14, 1982.
52. Morrisette represented to the Southeast Bank that
the information contained on the invoices was true and cor-
rect. Morrisette and Mintex also represented to the South-
east Bank that on the 26th, 27th, 30th, and 31st of Octo-
ber 1981, pursuant to invoice ## 2640/S1, 2641/S1,
2642/S1, and 2643/81, Mintex had shipped one hundred
ninety-three thousand nine hundred sixty-four dollars
($193,964) in goods (including freight charges) by air
carrier to Nigeria under the air bills which were attached
to the invoices. These representations were untrue and Mor-
risette knew they were untrue. Mintex and Morrisette made
those representations to the Southeast Bank knowing they
were false and intending that the Southeast Bank would rely
on them to pay the proceeds of Holmberg’s LC.
53. The representations made by Mintex and Mor-
risette to the Southeast Bank were false in the following
material respects:
a. As of November 5, 1981, goods and freight of one
hundred ninety-three thousand nine hundred sixty-
four dollars ($193,964) were reflected on the in-
voices presented but Mintex had not shipped them
by air carrier to Nigeria. Mintex and Morrisette’s
representations to the Southeast Bank that goods
and freight valued at one hundred ninety-three
A-30
thousand nine hundred sixty-four dollars
($193,964) had been shipped on or before No-
vember 25, 1981, by Lufthansa Airlines to Ni-
geria were untrue.
The dates appearing on the invoices submitted to
the Southeast Bank did not accurately reflect the
actual dates of invoicing. The invoices presented
to the Southeast Bank were back-dated to Octo-
ber 1981, but were actually created in August or
September of 1982. The back-dated invoices cre-
ated in August or September of 1982 were pre-
pared by Mintex and Morrisette for the purpose
of drawing down Holmberg’s LC by misleading
the Southeast Bank.
Mintex and Morrisette attached copies of air bills
of lading to the invoices submitted to the South-
east Bank. Mintex and Morrisette represented to
the Southeast Bank that the air bills attached to
Invoices ## 2640/S1, 2641/S1, 2642/S1, and
2643/S1 corresponded with each other. The air
bills were attached to the invoices to create an
appearance that they corresponded with each
other. In fact, the air bills did not correspond with
the invoices. Mintex and Morrisette attached the
air bills of lading to the invoices for the purpose
and intent of deceiving the Southeast Bank.
The air bills attached to the invoices submitted
to the Southeast Bank were materially altered by
Mintex and Morrisette. On each air bill submitted
to the Southeast Bank the portion of the air bill
A-31
which would have indicated the declared value of
the goods for customs purposes was intentionally
concealed. The concealment was accomplished by
the placement of a purported certification over the
declared value of the air bill. On the uncertified
copies of the original air bills, the amount of the
declared value of the goods for customs purposes
was significantly lower than the amount appear-
ing on the invoices submitted to the Southeast
Bank. The certification of the four air bills was
done to conceal the actual amount of goods
shipped by the original air bills from the Southeast
Bank.
e. To make it appear as though Invoice ##
2640/S1, 2641/81, 2642/S1, and 2643/81 cor-
responded with the air bills that were attached to
them, Mintex and Morrisette caused to have typed
on the back-dated invoices and corresponding air
bill numbers data from earlier sales to TWS. The
attached air bills did not correspond with the in-
voices because the goods reflected on the invoices
were never shipped by those air bills to Nigeria.
Mintex and Morrisette intended to and did cause
the Southeast Bank to rely on their representa-
tions that the air bills attached to the invoices
presented for payment corresponded with each
other. In fact, they did not.
54. The Southeast Bank relied on the documents Min-
tex and Morrisette presented when it drew down Holmberg’s
LC and wire transferred the one hundred twenty-five thou-
sand dollars ($125,000) to Mintex and Morrisette’s bank
in Eden Prairie.
A-32
55. Although Morrisette and Mintex represented that
one hundred ninety-three thousand nine hundred sixty-four
dollars ($193,964) had been shipped to Nigeria, TWS had
shipped to Nigeria only goods valued at approximately
sixty-five thousand dollars ($65,000).
56. On September 25, 1981, the First Bank-Pipestone
of Pipestone, Minnesota issued an irrevocable LC of
twenty-five thousand dollars ($25,000) for its customer,
one Peter DeJongh. Mintex was the beneficiary of this LC.
As the beneficiary, Mintex was entitled to draw down on
DeJongh’s LC upon presentment of an onboard ocean bill
of lading showing shipment of goods to Nigeria.
57. On June 10, 1982, Mintex drew down on De-
Jongh’s LC of twenty-five thousand dollars ($25,000.00).
The draw down was accomplished in person, as was the
deposit of its proceeds in Mintex’s bank account. To draw
down DeJongh’s LC, Morrisette personally presented to
First-Bank Pipestone Mintex invoices ## M13994,
M13995, and M13997 from TWS and memorandum bills
of lading.
58. When Mintex and Morrisette requested the draw
down of DeJongh’s LC, they were aware that they had not
shipped any goods by ocean bill of lading and did not pos-
sess an ocean bill of lading reflecting the shipment of any
goods.
59. On June 10, 1982, the documents presented by
Mintex and Morrisette to the First Bank-Pipestone, Mor-
risette specifically represented as follows:
I acknowledge Mintex has complied with all require-
ments and amount claimed is due us from Alhaji (Dr. )
A-33
Garba Nautan Hamza as invoices have not been paid
beneficiary within one hundred twenty (120) days
after day of shipment from U.S. Port, as evidenced by
the on-board of ocean bill of lading or February 15,
1982, whichever date is the latter.
The copies of invoices accompany this letter as evi-
dence of dates and shipping information.
60. The representations made to the First Bank-Pipe-
stone by Morrisette were untrue. As of June 10, 1982,
Mintex had not complied with the terms of DeJongh’s LC
and had not shipped goods by an ocean bill of lading.
Morrisette knew these representations were false.
6i. When Mintex and Morrisette presented the docu-
ments to First Bank-Pipestone they intended to cause the
First Bank-Pipestone to rely on those documents and to
pay the proceeds of DeJongh’s LC to them.
62. First Bank-Pipestone relied on the representations
made by Morrisette in paying the twenty-five thousand dol-
lars ($25,000) to Mintex and Morrisette.
63. On August 13, 1981, the First National Bank of
Anoka (“First National”) issued an LC of twenty-five
thousand doliars ($25,000) for one Gilbert Watson.
64. Beginning in April 1982, Morrisette initiated com-
munications with Steven Schmitt, an officer of First Na-
tional, for the purpose of drawing down Watson’s LC.
65. Between April, 1982 and October 15, 1982, Mor-
risette and Schmitt had numerous telephone conversations
regarding Morrisette’s efforts to draw down Watson’s LC.
A+34.
66. On April 19th, May 26th, and August 10th of
1982, Schmitt sent letters through the United States mails
to Morrisette regarding Mintex’s efforts to draw down
Watson’s LC.
67. On August 10, 1982, Schmitt wrote to Morrisette
and transferred Watson’s LC from TWS to Mintex. The
same day, Schmitt wrote to TWS advising it of the amend-
ment to Watson’s LC.
68. On two occasions before October 15, 1982, Mor-
risette presented documents to Schmitt at the First National
Bank for the purpose of drawing down Watson’s LC. On
both occasions, Schmitt told Morrisette that the documents
did not conform to the terms of Watson’s LC.
69. Watson’s LC required the presentment of an on-
board ocean bill of lading showing shipment of all goods.
As of October 15, 1982, Mintex had not shipped any goods
by ocean and did not have ocean bills of lading reflecting
shipment of any goods.
70. On October 15, 1982, Mintex, through one of its
officers or employees, presented documents to Jeffrey San-
derson, an officer of First National, for the purpose of
drawing down Watson’s LC. Sanderson had had prior deal-
ings with Morrisette when Morrisette was a customer and
Sanderson an employee of the First National Bank of
Wayzata.
71. On October 15, 1982, without the presentment of
an ocean bill of lading, First National Bank paid twenty-
five thousand dollars ($25,000) to Mintex on Watson's
LC. The same day, Mintex borrowed forty thousand dol-
lars ($40,000) from First National.
A+35
72. Before obtaining the forty thousand dollars
($40,000) loan on behalf of Mintex, Morrisette had ob-
tained a personal loan of forty thousand dollars ($40,000)
from First National.
73. Mintex and First National had an understanding
that Mintex would repay at least twenty-five thousand dol-
lars ($25,000) of the forty thousand dollar ($40,000)
loan within ten (10) days of October 15, 1982.
74. On October 25, 1982, Mintex repaid the forty thou-
sand dollar ($40,000) loan to First National.
75. Morrisette, as president of Mintex, directed Min-
tex’s aftairs so as to cause Mintex to present false and
misleading documents to First Bank-Pipestone and First
Bank of Anoka in order to draw down funds to which
neither Mintex nor Morrisette was lawfully entitled.
76. Mintex, on October 9, 1982, commenced a replevin
action in Du Page County Illinois Circuit Court to recover
the two hundred sixty-four thousand twenty dollars and
seventy-five cents ($264,020.75) of goods stored in Wood-
dale, Illinois by TWS. In the action Mintex in its verified
complaint by its counsel, represented that it was the owner
of these goods. Mintex knew it was not the owner and
that it had sold the goods to TWS.
77. On February 25, 1983, the Honorable Donald D.
Alsop, Judge of the United States Circuit Court, District
of Minnesota, appointed LeRoy Sydness, Kriene Kramer,
and plaintiff Holmberg, to a committee to “supervise and
manage the operations of TransWorld Services, Inc. . . .
with respect to the collection of accounts and accounts
receivables for goods and materials shipped by TWS to
A-36
Nigeria.” Sydness v. Trans-World Services, Inc., Civ. No.
3-83-194 (D. Minn. Feb. 25, 1983).
78. The committee did not have authority over goods
not shipped by TWS to Nigeria. The goods that were shipped
by Mintex to Wooddale, Illinois, had not been shipped to
Nigeria and thus, were not subject to the committee’s
authority.
79. On April 11, 1983, TWS filed for protection un-
der Chapter 11 of the Bankruptcy Act. The goods that the
committee was supervising were listed as assets in the Chap-
ter 11 filing and as of April 11, 1983, were subject to the
jurisdiction of the bankruptcy court.
80. On April 25, 1983, the committee met with Ham-
zer to receive offers from Hamzer for settlement of out-
standing accounts. On April 25, 1983, Hamzer made offers
to settle those accounts but because of TWS’s April 11,
1983 bankruptcy filing, neither the Alsop committee nor
Holmberg believed they had the power to enter into a bind-
ing agreement with Hamzer covering the goods that had
been sold by TWS. Therefore, Hamzer’s offers were never
accepted by the committee.
81. The committee’s term expired on April 26, 1983.
82. On May 11, 1983, Holmberg and other creditors
obtained relief from the automatic stay in the bankruptcy
court and petitioned Judge Alsop to reappoint the commit-
tee, or to appoint a receiver to take possession of the goods
sold by TWS to Hamzer. On June 14, 1983, Judge Alsop
appointed Robert Henson as the receiver.
A-37
83. When the Southeast Bank paid Mintex one hun-
dred twenty-five thousand dollars ($125,000), Holmberg
was damaged because he incurred a one hundred twenty-
five thousand dollar ($125,000) liability to the Southeast
Bank. Interest on that debt has accrued at fifteen percent
(15%) per annum compounded from September 14, 1982
to the present.
84. Asa result of his LC being cashed, Holmberg has
incurred legal and other expenses in attempting to recover
his funds and has incurred damages of thirty thousand dol-
lars ($30,000).
85. Holmberg’s damages of one hundred twenty-five
thousand dollars ($125,000) were liquidated and ascer-
tainable as of September 14, 1982.
86. Punitive damages in the amount of two hundred
fifty thousand dollars ($250,000) are reasonable in this
case. As of April 1982, Morrisette had a net worth in excess
of one million dollars ($1,000,000). As of December 31,
1982, Mintex owned assets valued in excess of six hundred
thousand dollars ($600,000) and had annual sales exceed-
ing one million dollars ($1,000,000).
CONCLUSIONS OF LAW
1. The Court has diversity jurisdiction because plain-
tiff is a resident of the state of Florida, Mintex is a citizen
of a state other than Florida, and Mintex’s principal place
of business is not in Florida. Morrisette is also a resident
of a state other than Florida, and the amount in controversy
exceeds ten thousand dollars ($10,000) exclusive of inter-
est and costs. The Court has federal question jurisdiction
A-38
under the Racketeering Influenced and Corrupt Organiza-
tions Act (“RICO”), 18 U.S.C. § 1964. Venue is proper
under 18 U.S.C. § 1965, in that Mintex and Morrisette
reside and transact their business within Minnesota.
2. The documents Morrisette and Mintex presented to
the Southeast Bank did not satisfy the terms of Holmberg’s
LC and the one hundred twenty-five thousand dollars
($125,000) payment to Mintex constituted a conversion of
Holmberg’s funds by Mintex and Morrisette. Morrisette, as
Mintex’s president, and as the person responsible for re-
questing and delivering-the documents to the Southeast Bank
is liable, jointly and severally with Mintex, for conversion
of one hundred twenty-five thousand dollars ($125,000).
3. As to Count One of the Complaint, Holmberg is
entitled to judgment against Mintex and Morrisette, jointly
and severally, for one hundred twenty-five thousand dollars
($125,000) plus costs and attorneys’ fees. Holmberg is
entitled to interest of six percent (6%) per annum from
September 15, 1982 to July 1, 1984. See Minn. Stat.
§ 334.01 (1984). Interest of nine percent (9% ) per annum
is to be calculated by the Clerk of Court from July 1, 1984
to the date of judgment, See Minn. Stat. § 549.09.
4. As to Count two, the Court concludes that Mor-
risette and Mintex fraudulently obtained Holmberg’s one
hundred twenty-five thousand dollars ($125,000) by
knowingly presenting materially false and misleading doc-
uments to the Southeast Bank with the intent that the bank
would rely on the false documents to pay the proceeds of
Holmberg’s LC. The Southeast Bank did rely on the pre-
sented documents and, as a result, paid out on Holmberg’s
LC.
A-39
5. Morrisette and Mintex received and retained Holm-
berg’s one hundred twenty-five thousand dollars ($125,000)
on the basis of the presentment of false and misleading
documents, to Holmberg’s detriment.
6. Morrisette and Mintex are jointly and severally lia-
ble to Holmberg for one hundred twenty-five thousand dol-
lars ($125,000) plus costs, attorneys’ fees, and interest at
the rate of six percent (6%) per annum, from September
14, 1983 to July i, 1984. Minn. Stat. § 334.01 (1984).
Plaintiff is also entitled to interest of nine percent (9%)
per annum from July 1, 1984, to the date of judgment to
be calculated by the Clerk of Court. Minn. Stat. § 549.09
(1984).
7. Defendant Morrisette is a person and Mintex is a
distinct enterprise within the meaning of 18 U.S.C. §§ 1961
and 1962.
8. Morrisette conducted the affairs of Mintex Corpo-
ration through a pattern of racketeering activity which in-
cluded at least two (2) acts of mail and wire fraud within
a ten (10) year period.
9. By conducting Mintex’s affairs through a pattern of
racketeering activity, Morrisette violated 18 U.S.C. §§ 1962
and 1964(c).
10. Holmberg was injured by Morrisette’s conduct in
directing the affairs of Mintex. Morrisette conducted Min-
tex’s affairs through a pattern of illegal activities directed
at recovering monies and goods to which Mintex and Mor-
risette was not lawfully entitled. While directing Mintex’s
affairs, Morrisette committed the following acts:
A-40
a. Fraudulently obtained payment of DeJongh’s let-
ter of credit.
6. Fraudulently obtained payment of Holmberg’s let-
ter of credit.
c. Fraudulently obtained payment of Watson’s letter
of credit.
11. Through Morrisette’s illegal activities, Mintex re-
ceived one hundred seventy-five thousand dollars
($175,000) to which it was not lawfully entitled. While
conducting Mintex’s business and in furtherance of his
fraudulent scheme, Morrisette used the United States mails
and interstate telephone and wire facilities to unlawfully
convert Holmberg’s one hundred twenty-five thousand dol-
lar ($125,000) LC.
12. Holmberg is entitled to damages by reason of Mor-
risette’s violation of 18 U.S.C. § 1962 in the amount of
three hundred seventy-five thousand dollars ($375,000).
These damages represent the proceeds of plaintiff's LC
multiplied three-fold. The plaintiff shall also receive costs
and reasonable attorneys’ fees as provided for in 18 U.S.C.
§ 1964(c). Holmberg is also entitled to and, in the Court’s
discretion, is granted judgment for interest from September
14, 1982, to the date of judgment to be calculated by the
Clerk of Court.
13. As to Count Four of Holmberg’s Complaint, Min-
tex and Morrisette acted with willful indifference to Holm-
berg’s rights and Holmberg is entitled to punitive damages
in the sum of two hundred fifty thousand dollars
($250,000.00).
AG]
14. Although the Court has found violations of Counts
One through Four (1-4) of the Complaint, plaintiff may
not recover under each count if such recovery amounts to
duplication, as it does here. Since the Court finds that re-
covery under Count Three (3) subsumes recovery under
Counts One, Two, and Four (1, 2 & 4) plaintiff is entitled
to recover as damages only those amounts set forth in para-
graph 12 above.
15. Holmberg is directed to file with this Court within
ten (10) days of this Order a verified petition setting forth
with particularity the attorneys’ fees and costs incurred by
him in prosecuting this action.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: February 1, 1985
/s/ROBERT G. RENNER
United States District Judge
MEMORANDUM
I. Introduction
In its Findings, the Court has rejected defendants’ theory
that TWS was not the true buyer of Mintex goods but was
part of a joint venture involving Dr. Hamza and Holmberg.
Contrary to defendant’s position, the Court also finds that
plaintiff acted in good faith. Defendants admitted they were
not innocent or blameless. They contended, however, that
plaintiff too had unclean hands and should be denied relief.
The Court disagrees. While the extensive findings obviate
the need for a comprehensive memorandum, the court be-
A-42
lieves that two issues should be addressed — the RICO
cause of action and the matter of damages.
II. RICO
The circuit courts disagree as to the parameters govern-
ing private civil actions under the Racketeer Influence and
Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-
1968. Alexander Grant & Co. v. Tiffany Industries, 742
F.2d 408 (8th Cir. 1984); Bennett v. Berg, 685 F.2d 1053,
1057 (8th Cir. 1983) (en banc), cert. denied, 104 S.Ct.
1882 (1983); Sedima, S.P.R.L. v. Imrex Co., Inc., 741
F.2d 482 (2d Cir. 1984), cert. granted, 53 U.S.L.W. 3495
(Jan. 15, 1985); Bankers Trust Co. v. Rhoades, 741 F.2d
511 (2d Cir. 1984); Haroco v. American National Bank
& Trust Co. of Chicago, 747 F.2d 384 (7th Cir. 1984),
cert. granted, 53 U.S.L.W. 3496 (Jan. 15, 1985); Schact
v. Brown, 711 F.2d 1343 (7th Cir. 1983), cert. denied,
104 S.Ct. 508 (1984). The United States Supreme Court
has recently granted certiorari in several cases interpreting
RICO. Sedima S.P.R.L. v. Imrex Co., supra; Haroco v.
American National Bank & Trust Co. of Chicago, supra.
The Court trusts these decisions will provide greater guid-
ance to the lower courts in future RICO cases.
The elements of a civil RICO claim are as follows: 1)
a person; 2) who conducted the affairs of; 3) a distinct
enterprise; 4) through a pattern; 5) of racketeering activity;
6) with injury to business or property; 7) by reason of a
violation of § 1962. 18 U.S.C. §§ 1962, 1964(c); Bennett
v. Berg, 608 F.2d at 1060. Morrisette qualifies as a “per-
son” under RICO. 18 U.S.C. § 1961(3). As the president
of Mintex, Morrisette acted in Mintex’s name but was dis-
tinct from Mintex. Mintex is a separate entity incorporated
A-43
under Minnesota law. It conducts its own manufacturing
business and maintains its own business records. There-
fore, Mintex qualifies as a “distinct enterprise” for RICO
purposes. See 18 U.S.C. § 1961(4); Bennett v. Berg, 608
F.2d at 1060.
Under this circuit’s present interpretation of RICO, the
Court has concluded that Morrisette conducted the affairs
of Mintex through a pattern of racketeering activity in
violation of 18 U.S.C. § 1962. A “pattern” is defined in
RICO as at least two acts of racketeering activity within
a ten year period. 18 U.S.C. § 1961(5). “Racketeering
activity” includes mail and wire fraud. Jd. § 1961(1).
Morrisette committed at least two acts of mail and wire
fraud in drawing down the Holmberg and Watson letters
of credit. Two elements establish a violation of the mail
fraud statute: a) the formation of a scheme with intent to
defraud; and b) the use of the mails in furtherance of that
scheme. 18 U.S.C. § 1341.
Morrisette devised a scheme to recover money owed to
Mintex from its sales of goods to TWS. The scheme was
accomplished through the fraudulent draw downs on the
DeJhong, Holmberg, and Watson letters of credit, and
through the replevin action in Illinois. In drawing down the
Holmberg and Watson letters of credit, Morrisette used the
United States mails. Although Morrisette did not initiate
all the mailings, he knew his actions might naturally result
in others using the mails. Such evidence is sufficient to show
that Morrisette used the mails in furtherance of his fraudu-
lent scheme. United States v. Keanne, 522 F.2d 534, 551
(7th Cir. 1975), cert denied, 424 U.S. 976 (1976). The
scope of the wire fraud statute is equally as broad. United
States v. Calvert, 523 F.2d 895 (8th Cir. 1975), cert.
A-44.
denied, 424 U.S. 911 (1976). Consequently Morrisette’s
use of the telephone in connection with these illicit trans-
actions constituted wire fraud.
The defendants argue with particular vehemence that
plaintiff's injury was not caused “by reason of a violation
of section 1962.” See 18 U.S.C. § 1962(c). Defendants
assert that plaintiff must suffer something more than injury
from the underlying acts of mail and wire fraud — some-
thing equivalent to a “racketeering enterprise injury.” The
Eighth Circuit has recognized “that a racketeering enter-
prise injury is a slippery concept whose definition has
eluded even those courts professing to recognize it.” Alex-
ander Grant & Co. v. Tiffany Industries, 742 F.2d 408,
413 (8th Cir. 1984). Racketeering enterprise injury has
been construed to require an injury resulting from mobster
activity or the efforts of organized crime, Sedima, S.P.R.L.
v. Imrex Co., 741 F.2d 482 (2d Cir. 1984), cert. granted, 53
U.S.L.W. (January 15, 1985), and to require a commercial
or competitive injury, North Barrington Development Inc.
v. Fanslow, 547 F.Supp. 207 (N.D. Ill. 1980); Van Schaick
v. Church of Scientology, 535 F.Supp. 1125 (D. Mass.
1982). The Eighth Circuit, however, has expressly rejected
these restrictions. Bennett v. Berg, 685 F.2d at 1059-61.
The Court believes that the Eighth Circuit has construed
the “by reason of” language to require that a distinct
enterprise exist through which the racketeering activity is
conducted. See Alexander Grant & Co. v. Tiffany Industries,
742 F.2d at 413 (“We have characterized the attempt to
limit the scope of RICO by seizing on the ‘by reason of’
language contained in section 1964(c) as a ‘reiterat[ion]
in new guise [of] the argument that no [distinct] ‘enterprise’
is alleged.” ) Although the Alexander court viewed its deci-
A-45
sion as consistent with the requirement that civil RICO
plaintiffs must show something more than injury from the
underlying predicate acts, Alexander did not address what
that something more was. Jd. Therefore, Bennett controls
this Court’s interpretation of “something more.” In Bennett,
the Eighth Circuit defined that concept as requiring proof
of a separate enterprise. The Bennett court stated, “[b]y
requiring proof of an ‘enterprise,’ RICO requires proof of a
fact other than the facts required to prove the predicate
acts of racketeering.” Bennett v. Berg, 685 F.2d at 1060.
Since Mintex qualifies as a separate enterprise under RICO
and the remaining elements of a RICO violation have been
shown, plaintiff has proven his RICO claim.
III. Damages
Although the Court has found for plaintiff on all four
counts, plaintiff is not entitled to a multiple recovery for
the same injury. See Twin City Federal Savings & Loan
Association v. Transamerica Insurance Company, 491
F.2d 1122, 1124 (8th Cir. 1974). The Court has concluded
that, as a matter of law, the damages awarded under Count
III (RICO) subsume those under the remaining counts,
including the punitive damages found under count IV. In
other words, the treble damages awarded under count III
duplicate the puritive damages provided under count IV.
Of course, should an appellate court hold that a RICO
cause of action is not appropriate under these facts, then
the damages found on the remaining counts would be
awarded to the extent they are not duplicative.
A-46
United States Court of Appeals
FOR THE EIGHTH CIRCUIT
Nos. 85-5138 & 85-5221-MN
Thomas A. Holmberg,
_ Appellee,
vs.
Rodney C. Morrisette, et al.,
Appellants.
Appeals from the United States District Court
for the District of Minnesota
Appellee’s petition for rehearing en banc has been con-
sidered by the Court and is denied.
Petition for rehearing by the panel is also denied.
October 16, 1986
STATUTES INVOLVED
Relevant Sections of Racketeer Influenced and Corrupt
Organizations, 18 U.S.C. § 1961 et seq.
Section 1961, 18 U.S.C. § 1961. Definitions
(1) “racketeering activity” means (A) any act or threat
involving murder, kidnaping, gambling, arson, robbery,
bribery, extortion, dealing in obscene matter, or dealing in
narcotic or other dangerous drugs, which is chargeable
under State law and punishable by imprisonment for more
than one year; (B) any act which is indictable under any
of the following provisions of title 18, United States Code:
Section 201 (relating to bribery), section 224 (relating to
sports bribery), sections 471, 472, and 473 (relating to
A-47
counterfeiting), section 659 (relating to theft from inter-
state shipment) if the act indictable under section 659 is
felonious, section 664 (relating to embezzlement from pen-
sion and welfare funds), sections 891-894 (relating to ex-
tortionate credit transactions), section 1084 (relating to
the transmission of gambling information, section 1341
(relating to mail fraud), section 1343 (relating to wire
fraud), sections 1461-1465 (relating to obscene matter),
section 1503 (relating to obstruction of justice), section
1510 (relating to obstruction of criminal investigations),
section 1511 (relating to the obstruction of State or local
law enforcement), section 1951 (relating to interference
with commerce, robbery, or extortion), section 1952 (relat-
ing to racketeering), section 1953 (relating to interstate
transportation of wagering paraphernalia), section 1954
(relating to unlawful welfare fund payments), section 1955
(relating to the prohibition of illegal gambling businesses),
sections 2312 and 2313 (relating to interstate transporta-
tion of stolen motor vehicles), sections 2314 and 2315
(relating to interstate transportation of stolen property),
section 2320 (relating to trafficking in certain motor ve-
hicles or motor vehicle parts), sections 2341-2346 (relating
to trafficking in contraband cigarettes), sections 2421-24
(relating to white slave traffic), (c) any act which is in-
dictable under title 29, United States Code, section 186
(dealing with restrictions on payments and loans to labor
organizations) or section 501(c) (relating to embezzlement
from union funds), (D) any offense involving fraud con-
nected with a case under title 11, fraud in the sale of securi-
ties, or the felonious manufacture, importation, receiving,
concealment, buying, selling, or otherwise dealing in nar-
cotic or other dangerous drugs, punishable under any law
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of the United States, or (E) any act which is indictable
under the Currency and Foreign Transactions Reporting
Act;
(5) “pattern of racketeering activity” requires at least
two acts of racketeering activity, one of which occurred
after the effective date of this chapter and the last of which
occurred within ten years (excluding any period of im-
prisonment) after the commission of a prior act of racke-
teering activity;
Section 1962(c), 18 U.S.C. § 1962(c). Prohibited Activities
(c) It shall be unlawful for any person employed by
or associated with any enterprise engaged in, or the activi-
ties of which affect, interstate or foreign commerce, to con-
duct or participate, directly or indirectly, in the conduct of
such enterprise’s affairs through a pattern of racketeering
activity or collection of uniawful debt.
Section 1964(c), 18 U.S.C. § 1964(c). Civil Remedies
(c) Any person injured in his business or property by
reason of a violation of section 1962 of this chapter may
sue therefor in any appropriate United States district court
and shall recover threefold the damages he sustains and the
cost of the suit, including a reasonable attorney’s fee.
Section 3575(e), 18 U.S.C. § 3575(e)
(e) For purposes of paragraphs (2) and (3) of
this subsection, criminal conduct forms a pattern if it em-
braces criminal acts that have the same or similar purposes,
results, participants, victims, or methods of cominission, or
otherwise are interrelated by distinguishing characteristics
and are not isolated events.
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UNITED STATES COURT OF APPEALS
For The Eighth Circuit
Nos. 85-5138/5221
JUDGMENT
Douglas A. Holmberg,
Appellee,
V.
Rodney C. Morrisette, et al.,
Appellants.
Appeal from the United States District Court
for the District of Minnesota
This appeal from the United States District Court was
submitted on the record of the district court, briefs of the
parties and was argued by counsel.
After consideration it is ordered and adjudged that the
judgment of the district court be affirmed in part, reversed
in part and remanded to the district coura for proceedings
consistent with the opinion of this Court.
September 3, 1986
A true copy.
ATTEST:
/s/ ROBERT D. ST. VRAIN.
Clerk, U.S. Court of Appeals, Eighth Circuit
11/6/86
Filed: Nov. 10, 1986, Francis E. Dosal, Clerk
By: JMK, Deputy Clerk
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.