Petition for Writ of Certiorari — Feltner v. Fleischhauer
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FILED
J
YOosS NOV 29 1389
ders — BOSEPH F. SPANOL, JR,
CLERK
No. _
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1989
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
R Dp Boypsto
( el of Recor
S M. Youn
JO} Jay FOSSET1
STI ss & TR
2100 Central Trust Cent:
201 East Fifth Street
Cincinnati, Ohio 45202-4186
(513) 621-212]
Attorneys for Petitioners
C. Elvin Feltner, Jr..,
Palm Beach Properties, Inc., and
Metropolitan Properties, Ine
PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203
QUESTIONS PRESENTED FOR REVIEW
. Is the requirement of a “pattern” of racketeering ac-
tivity for civil liability under RICO unconstitutionally
vague?
. Must the predicate acts of federal mail fraud and wire
fraud in a civil RICO action be proven by clear and
convincing evidence?
. Must the enterprise in a civil RICO action have an
ascertainable structure distinct from that inherent in
the pattern of racketeering activity?
. Is joint and several liability mandated in a civil RICO
action?
- PARTIES
PETITIONERS
(Defendants-appellants in the United States Court
of Appeals for the Sixth Circuit):
1. C. Elvin Feltner, Jr.
2. Metropolitan Properties, Inc., aka Metropolitan
Films, Inc.?
3. Palm Beach Properties, Inc., aka Palm Beach
Films, Inc.!
RESPONDENTS
(Plaintiffs-appellees in the United States Court of
Appeals for the Sixth Circuit):
1. Natividad Aumentado 12.
2. Ken W. Chambers 13.
3. Gordon M. Earle
4. Harry E. Fleischhauer ie
5. Bruce I. Forrester 1S
6. Donald Forrester 16
7. Kathleen D. Forrester
8. Robert P. Gill 17.
9. Dennis M. Harrington 18.
10. Roger Houston 19.
11. Charles E. Judd
C. T. Lee
Robert Mournighan
and Ona Mournighan
. Charles Mueller
. James Ralph
. REF Productions, Ltd.
(an Ohio limited
partnership)
Joseph Reisinger
Louis B. Updegrove
Danie] E. Wright and
Carol B. Wright
1 Petitioner C. Elvin Feltner, Jr. is the sole shareholder of
Petitioners Metropolitan Properties,
Inc., Palm Beach Proper-
ties, Inc., and of Respondent Krypton Corporation. Neither of
in any other corporation.
the corporate Petitioners own stock
Sup. Ct. Rule 28.1.
iil
(Other Defendants-appellants in the United States
Court of Appeals for the Sixth Circuit):
1. Robert J. Levine
2. Krypton Corporation”
* Krypton Corporation has no interest in the outcome of this
petition. Sup. Ct. Rule 19.6.
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED FOR REVIEW ................ i
PUREED wshiconsesdasaumnsiatnidabesindaaambintaatiidabiedetins ii
po) FP iy: < : _-_ NUrnRRNE NTN nN vi
CE SUNAPOE cakznaccisicccnnsansscquensiacedinthuiateeuminbectn 1
EFA ksncscscacaisnutseeenpasaevbicepieeconsabads 2
CONSTITUTIONAL AND STATUTORY PROVISIONS
EOE WR PEIEED sein cdawhcnipttsinsshasienrinicienihitaiiadaamuaneaebasiainiaaamabiinieacitn 2
Statement of the Case
S. TE BEF khan ticectentinnicinns 3
2. POC Te chesisisanisntenininernn 6
REASONS FOR GRANTING THE WRIT
1. The Requirement of a Pattern of Racketeer-
ing Activity for Civil Liability Under RICO
is Unconstitutionally Vague ...........ccccssseeees 10
2. The Predicate Acts of Mail Fraud and Wire
Fraud In a Civil RICO Action Must be Proven
by Clear and Convincing Evidence ................ 16
3. The Enterprise in a Civil RICO Action Must
Have an Ascertainable Structure Distinct
from That Inherent in the Pattern of Rack-
Cteering ActiVIty .......c.ccccccccscesccsccccasesosccsssece 20
4. Joint and Several Liability is not Mandated
in @ Civil RICO ActiOR .nnccccccccsmscecescensonssenns 23
CONCLUSION ...cccccscccccscccccccccccesccssccososscsosesecssessoccses 28
APPENDIX
Opinion and Supplementary Opinion issued,
respectively, June 27 A 31,
1989 by the United States of
Appeals for the Sixth Circuit .............. 1a,26a
nny Dee ee” ial ewe Ae oe
Order entered August 13, 1987 by the district
court trebling damages as determined by
the jury and awarding plaintiffs their costs
PU IE oho ciecseccnsocortnnccsorsenes
Judgment entered August 13, 1987 by the
district court on foregoing order entered
a
Order entered October 29, 1987 denying
defendants’ post-trial motions ..............
Judgment issued June 27, 1989 by the United
States Court of Appeals for the Sixth
eR ove a a a ae Ce
The Racketeer Influenced and Corrupt Or-
ganizations Act, 18 U.S.C. 561961, 1962
SR NECA ee A a
36a
TABLE OF AUTHORITIES
Cases Page
Armco Industrial Credit Corp. v. SLT Warehouse
Co., 782 F.2d 475 (5th Cir. 1986) .................. 17
Baggett v. Bullitt, 377 U.S. 360 (1964) ...............0.. 12
B. F. Hirsch v. Enright Refining Co., Inc., 751 F.2d
GOB GG Cir, FIG sinc sctnsinancetsesnavinccsctserstnersieens 22
Bennett v. Berg, 685 F.2d 1053 (8th Cir. 1982), on
reh'g, 710 F.2d 1861, cert. denied, 464 U.S.
1008 LNT eT et ey Healt aloe re ee 21,22
Bennett v. United States Trust Co., 770 F.2d 308
(2d Cir. 1985), cert. denied, 474 U.S. 1058
CIID ainicssacoesnnasietsdcachaeinbabioiacaaadandaamaaanas 22
Bishop v. Corbitt Marine Ways, Inc., 802 F.2d 122
CIA CO. TIRED cesicecacsnsinnsinstiniasncosmmmenionsnaneeinn 22
Bosteve, Ltd. v. Marauszwski, 642 F. Supp. 197
CE DDIN. 1. BBG) cececesscccccncsovescudpsesscevessnssstmpnesase 17
Cramp v. Board of Public Instruction, 368 U.S. 278
(ROBT) .ceccsceccccconcscccconcsessvsstenmnsnnceunseseneaboceisescsess 12
Cullen v. Margiotta, 811 F.2d 698 (2d Cir.), cert.
denied, 483 U.S. 1021 (1987) ............cccseeeeeeeees 17
Erie R.R. v. Tompkins, 304 U.S. 64 (1938) .......... 18
Federal Communications Comm. v. American
Broadcasting Co., 347 U.S. 284, reh’g denied,
BAT U.S. BOG CIGBE) ncocerccenrceraresesrecrssnccnnessensece 12
Ford Motor Co. v. B & H Supply, Inc., 646 F. Supp.
O75 (D. Mien. 1006). ...cncccccccescessessssoseninncssocence i7
Haroco, Inc. v. American Nat'l Bank & Trust Co.,
747 F.2d 384 (7th Cir. 1984), aff'd sub nom.,
GTB UB. GBC CBBBD ncverecrssssissscscvsivenainens 16,20,22
H. J., Inc. v. Northwestern Bell Telephone Company,
__ U.S. __., 108 S.Ct. 1219, 57 U.S.L.W.
QBE1 CRDBD) scorecesccsereescininn 10,11,12,13,14,15,22
Herman & MacLean v. Huddleston, 459 U.S. 375
(19GB) .....0..00ccccerceccsecesosseseenacossnssssnesnesesssseenenense 19
vii
Table of Authorities Continued
Keyishian v. Board of Regents, 385 U.S. 589
STE bdidcsdietiencenceddaaibeldasisaaeabnseatdannienicerenenamesiinniiionsin 11
KIRO, Inc. v. Commissioner, 51 T.C. 155 (1968) .. 5
Liquid Air Corp. v. Rogers, 834 F.2d 1297 (7th Cir.
1987), cert. denied, __. U.S.___ , 109 S.Ct.
Neen ee cncuucbsasbianen 17
Miller v. Affiliated Financial Corp., 624 F. Supp.
fT Al 27
Northwest Airlines, Inc. v. Transport Workers
es ee ee, Oe ED 26
Owl Constr. Co., Inc. v. Ronald Adams Contractor,
Inc., 642 F. Supp. 475 (E.D. La. 1986) ......... 17
Platsis v. E.F. Hutton & Co., 642 F. Supp. 1277
(W.D. Mich. 1986), aff'd, 829 F.2d 13 (6th Cir.
1987), cert. denied, __ U.S.__., 108 S.Ct.
Neen ee iuicchasete 17
Rae v. Union Bank, 725 F.2d 478 (9th Cir.
ICRC EGE, EERE BSS le tea ee oa ae 22
Santosky v. Kramer, 455 U.S. 745 (1982) ............. 18
Sedima, S. P. R. L. v. Imrezx Co., 473 U.S. 479
RS TR 10,11,16,18,19,24,25
Stainton v. Tarantino, 637 F. Supp. 1051 (E.D. Pa.
GES SERED EMM ae Ors Ree eC 17
Texas Industries, Inc. v. Radcliff Materials, Inc.,
I a chnaneeee 25,26
United States v. Aleman, 609 F.2d 298 (7th Cir.
1979), cert. denied, 455 U.S. 946 (1980) ........ 11
United States v. Bargaric, 706 F.2d 42 (2d Cir.),
cert. denied sub nom., 464 U.S. 840 (1983) ... 21
United States v. Bledsoe, 674 F.2d 647 (8th Cir.),
cert. denied, 459 U.S. 1040 (1982) ......0.0000000... 20
United States v. Campanale, 518 F.2d 352 (9th Cir.
1975), cert. denied, 423 U.S. 1050 (1976) ....... 11
viii
Table of Authorities Continued
Page
United States v. Computer Sciences Corp., 689 F.2d
1181 (4th Cir. 1982), cert. denied, 459 U.S.
RID CIID sscasnisonnninnimendaieanieieelinadsiada tenets 22
United States v. Caporale, 806 F.2d 1487 (11th Cir.
RY A oe | a Ye 27
United States v. Huber, 603 F.2d 387 (2d Cir. 1979),
cert. denied, 445 U.S. 927 (1980) ................... 11
United States v. Local 560, Int'l Brotherhood of
Teamsters, 780 F.2d 267 (3d Cir. 1985), cert.
denied, 476 U.S. 1140 (1986) ................cccecceees 17
United States v. Morelli, 643 F.2d 402 (6th Cir.),
cert. denied, 453 U.S. 912 (1981) ................... ll
United States v. Pantone, 609 F.2d 675 (3d Cir.
BSED cocvescsacinensnitetabaeasatenmeeiaaadeliimaaicn 1]
United States v. Parness, 503 F.2d 430 (2d Cir.
1974), cert. denied, 419 U.S. 1105 (1975) ....... 11
United States v. Riccobene, 709 F.2d 214 (3d Cir.),
cert. denied, 464 U.S. 849 (1983) ................... 20,23
United States v. Swiderski, 593 F.2d 1246 (D.D.C.
1978), cert. denied, 441 U.S. 933 (1979) ........ ll
United States v. Tillett, 763 F.2d 628 (4th Cir.
DODD cecevieccnscecocscscenctccnssnessennensenieneeiiaaibeedenstaes 20
United States v. Turkette, 452 U.S. 576 (1981) ..... 23
United States v. Weinstein, 762 F.2d 1522 (11th Cir.
1985), modified, reh’g denied in part, 778 F.2d
673 (1985), cert. denied, 475 U.S. 1110
(RBI cecercervnsrcsesscsnnscesngptnsincussensbeceineeaiatiainiias 20
Wilcox v. First Interstate Bank, N.A., 815 F.2d 522
Citi Clr. BGT ccsrececessccsssendeescuisabetagiaenaiinan 17,18
Statutes
18 U.S.C. §§1961, 1962 and 19664 ................ 3,6,7,8,14,16
Constitution of the United States
Asnentimnant, VY ccsicscsctsctnsintalie 2,3
Table of Authorities Continued
Page
Other Authorities
Harper, James & Gray, The Law of Torts (1986) . 27
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1989
|
C. ELVIN FELTNER, JR., et al.,
Petitioners,
Vv.
Harry E. FLEISCHHAUER, et al.,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
To the Honorable Chief Justice and Associate Justices
of the Supreme Court of the United States:
The Petitioners, C. Elvin Feltner, Jr., Metropolitan
Properties, Inc., and Palm Beach Properties, Inc., re-
spectfully pray that a writ of certiorari issue to re-
view the judgment of the United States Court of
Appeals for the Sixth Circuit.
OPINICNS BELOW
The June 27, 1989 slip opinion and the August 31,
1989 Supplemental Opinion delivered by the United
States Court of Appeals for the Sixth Circuit are
reported at 879 F.2d 1290 and appear in the Appen-
dix hereto beginning at page la. The order entered
August 13, 1987 by the United States District Court
for the Southern District of Ohio trebling the jury’s
damage awards, the judgment also entered August
13, 1987 by the district court on that order and the
jury’s verdict, and the order entered October 29, 1987
by the district court denying defendants’ post-trial
motions are reproduced in the Appendix hereto be-
ginning at page 28a.
JURISDICTION
Petitioners seek review of the judgment entered
June 27, 1989 by the Sixth Circuit on the slip opinion
issued that day by that court and, also, on the August
31, 1989 Supplemental Opinion issued in response to
the petition for rehearing filed by Respondents in the
Sixth Circuit on July 11, 1989. This petition is filed
within 90 days of the Supplemental Opinion. 28 U.S.C.
§2101(c). This Court has jurisdiction to review said
judgment and Supplemental Opinion pursuant to 28
U.S.C. Section 1254(1). This case involves the follow-
ing provisions of the Constitution of the United States
and federal statutes:*
CONSTITUTIONAL AND STATUTORY PROVISIONS
INVOLVED
CONSTITUTION OF THE UNITED STATES,
AMENDMENT V
No person shall be held to answer for a cap-
ital, or otherwise infamous crime, unless on
228 U.S.C. §2403(a) may be applicable. No court has certified
to the Attorney General of the United States the fact that the
constitutionality of the above referenced Act of Congress is
drawn in question in this case. Sup.Ct. Rule 28.4(b).
a presentment or indictment of a Grand Jury,
except in cases arising in the land or naval
forces, or in the Militia, when in actual ser-
vice in time of War or public danger; nor
shall any person be subject for the same off-
ence to be twice put in jeopardy of life or
limb; nor shal] be compelled in any criminal
case to be a witness against himself, nor be
deprived of life, liberty, or property, without
due process of law; nor shall private property
be taken for public use, without just com-
pensation.
THE RACKETEER INFLUENCED AND CORRUPT OR-
GANIZATIONS ACT, 18 U.S.C. Sections 1961, 1962
and 1964.
Found in the Appendix hereto beginning at page
36a.
STATEMENT OF THE CASE
1. Statement of the Facts
This controversy arises out of purchases by the first
19 listed Respondents of nontheatrical rights to dis-
tribute 23 films, consisting variously of full-length fea-
ture motion pictures and seria] episodes.
The purchase contracts included the right to dis-
tribute the films on television and cable television, by
videocassette, and for other viewing except in movie
theaters. The purchase contracts were entered into
with either Petitioners Metropolitan Properties, Inc.
or Palm Beach Properties, Inc. in November or De-
cember of 1980 (except for Respondent Donald
Forrester who contracted in late 1981).
Petitioners and the two Respondents-defendants*‘ all
allegedly participated in the marketing and sale of
the film rights to the Respondents-purchasers. Kryp-
ton Corporation was not incorporated until September
28, 1982, but was alleged, nonetheless, to have ac-
tively engaged in the film marketing plan as early as
November of 1980. Petitioner C. Elvin Feltner was
the sole shareholder, a director, and the chairman of
the three defendant corporations. Robert Levine was
an officer of each of the defendant corporations.
In October 1980, Levine mailed a packet of infor-
mation to Respondent Harry E. Fleischhauer, an in-
vestment advisor, on the availability of the films in
question. Levine followed up the mailing by tele-
phoning Fleischhauer. As a result of that conversa-
tion, Levine mailed Fleischhauer a ‘‘full kit’’ detailing
the terms of the film program offered. Fleischhauer
contacted Donald Forrester, his accountant and a cer-
tified public accountant, to review the full kit. Levine
then traveled to Cincinnati in November to discuss
the investment with Fleischhauer and Donald Forres-
ter.
Most Respondents-purchasers received their infor-
mation either directly or indirectly (through Fleis-
chhauer or Forrester) from the full kit, a document
more than 100 pages long and containing material
relating to the tax benefits of the transaction, a list
of film titles available, a purchase and sale agreement,
copies of financing options, a 64-page legal opinion,
and miscellaneous questions, answers and examples.
The transaction was described as a purchase for
both income and tax-advantage purposes to be fi-
‘Robert J. Levine and Krypton Corporation.
ee Le EN Se ee |
nanced through an initial down payment, the balance
expected to be paid with interest from revenues gen-
erated by the buyers’ distribution activity over a ten-
year period. The purchase prices and down payments
varied depending upon the nature of the film. The
standard form contract included a provision for mak-
ing the down payment in installments. Respondents-
purchasers were to take full responsibility for ar-
ranging the distribution of the film. It was repre-
sented that the purchasers could enter into further
distribution contracts providing that the distributor
would retain 40% of the gross revenues without any
reimbursement of expenses.
The full kit explained that a purchaser could obtain
a refinancing agreement with an unaffiliated entity,
Southwest Capital Corporation, in the event revenues
were not sufficient to pay the purchase price over
the ten-year period. It also addressed the tax impli-
cations of the purchase and discussed KIRO, Inc. v.
Commissioner, 51 T.C. 155 (1968), under which the
owner of film distribution rights was permitted a
specified accelerated depreciation.
The full kit also advised that there was a significant
chance a purchaser would be audited by the Internal
Revenue Service because of earlier abuses regarding
production and distribution of motion pictures. The
purchasers were offered the opportunity to convert
liability on the purchase contract from full recourse
to nonrecourse in the event the IRS disallowed an-
ticipated deductions and write-offs on the investment.
A condition of the conversion option was that the
purchaser contest the IRS determination.
A list of numerous distributors was provided to
Fleischhauer. All Respondents-purchasers initially en-
tered into distribution contracts with Joseph Green
Film Enterprises, Inc., which was not named as a
defendant. Letters were provided to Green for the
benefit of all the Respondents-purchasers in order that
Green could obtain access to the films, but Green
failed to secure distribution of any of the films. The
Respondents-purchasers attributed this failure to the
existence of “‘pirated’’ copies of the films, the poor
quality of the copies provided to Green and/or the
failure of the sellers to provide copies.
Because of the distribution problems, within a few
months after execution of their purchase contracts,
several Respondents-purchasers who had made only
partial down payments began withholding further in-
stallment payments due. In all, Respondents-pur-
chasers paid a total of $211,700 of the $346,600 due
as down payments under their respective film pur-
chase contracts.
Faced with demands that balances be paid and the
failure to distribute the films, Bruce Forrester and
Donald Forrester solicited the other Respondents-pur-
chasers to pursue litigation.
2. Proceedings Below
Respondents-purchasers filed an action for fraud
under Ohio common law and for violation of the Rack-
eteer Influenced and Corrupt Organizations Act, 18
U.S.C. §1961 et seg. (“RICO’’) against the three
Petitioners and the two Respondents-defendants in
the United States District Court for the Southern
District of Ohio. The jurisdiction of the district court
was invoked under 28 U.S.C. §1331 and 18 U.S.C.
§1964(c) by reason of the RICO claims and under the
~)
pvinciple of pendent jurisdictior as to the state law
fraud claims.
The first RICO claim, separately alleged by each
plaintiff in the complaint, states, in part, that:
defendants ‘“‘... and John Does and Jane
Does, enterprises engaged in and whose ac-
tivities affect interstate commerce, did con-
duct and participate in their affairs through
a ‘pattern of racketeering activity,’ as that
term is defined in 18 U.S.C. Sections 1961(1)
and 1961(5), and, in so doing, violated 18
U.S.C. Section 1962’’ thereby injuring
plaintiffs in their business
and further that:
“... defendants, acting as a group and con-
stituting an enterprise as that term is defined
in 18 U.S.C. Section 1961(4)’’ devised a
scheme to defraud each plaintiff ‘in a man-
ner prohibited by 18 U.S.C. Sections 1341
and 1343 and thereby violated 18 U.S.C. Sec-
tion 1962.”
The second RICO claim alleges, in part, that:
“For the purpose of executing the aforesaid
scheme”’ Messrs. Feltner and Levine “uti-
lized, or caused to be utilized, the United
States mail facilities in interstate commerce
on two or more occasions and thereby vio-
lated 18 U.S.C. Sections 1341, 1343, and
1962”
and further that:
Messrs. Feltner and Levine ‘“‘did conduct and
participate in the affairs of’ defendants, ‘‘en-
terprises engaged in and whose activities af-
fect interstate commerce, through a ‘pattern
of racketeering activity,’ as that term is de-
fined in 18 U.S.C. Section 1961(1) and Sec-
tion 1961(5), through a scheme, artifice, and
device to defraud’ and, in so doing, “injured
plaintiffs in their business and property.”’
Defendants requested the district court instruct the
jury that the burden of proof for plaintiffs on their
RICO claims, as on their state law fraud claims, was
by clear and convincing evidence. The district court
instead adopted a preponderance of the evidence
standard. Defendants also moved for a directed ver-
dict, both at the conclusion of plaintiffs’ case and of
defendants’ case. A primary basis for the motion was
that Krypton had not been formed as a corporate
entity until well after the sales to plaintiffs.
The jury was given ten separate interrogatories,
five on the RICO claims, five on the common law
fraud claims, and two separate damages charts, one
for the RICO claims and the other for the common
law fraud claims.
The jury answered the interrogatories by indicating
that all defendants had violated the RICO statute and
had committed both mail fraud and wire fraud (except
that there was no wire fraud on the part of Krypton)
and that all plaintiffs had been affected by either such
mail or wire fraud. The jury at the same time did
not find that any defendant had committed fraud un-
der Ohio law. The jury assessed damages in favor of
each of the 19 plaintiffs in various specific amounts
against each of the five defendants, which damages
totalled $1,317,177.
owe”
APN lah os nat ae
The district court then entered an order trebling
the damages in favor of each plaintiff against each
defendant to produce a total money judgment in the
amount of $3,951,351. Defendants filed post-trial mo-
tions for directed verdict, judgment notwithstanding
the verdict, and for a new trial. The district court
denied all of the defendants’ post-trial motions.
Petitioners and the two Respondents-defendants
appealed to the United States Court of Appeals for
the Sixth Circuit. Three distinct issues under RICO
were raised on the appeal: (1) that the district court
should have charged the jury that the burden of proof
for the predicate acts of wire and mail fraud is clear
and convincing evidence; (2) that plaintiffs failed to
prove separate persons and an enterprise; and (3) that
plaintiffs failed to prove a pattern of racketeering
activity. Also raised on appeal were the issues of
damages and the liability of Krypton. The Sixth Cir-
cuit affirmed the district court’s instruction that the
burden of proof was a preponderance of the evidence
and found that plaintiffs had proven separate persons
and an enterprise and, also, a pattern of racketeering
activity, although the Sixth Circuit conceded the last
issue was ‘“‘a close question.’’ The Sixth Circuit re-
versed the judgment against Krypton on the basis it
had no legal existence as of the dates of the sales of
the film distribution rights. The Sixth Circuit also
reversed the damage award and held the amount re-
coverable by the plaintiffs-purchasers was limited to
the actual amount each paid to the selling corporate
defendant as listed in the chart attached to the
defendants-appellants’ brief. Finally, the Sixth Circuit,
sua sponte, raised the issue of joint and several lia-
bility among defendants in a civil] RICO action and,
10
relying on cases concerning criminal RICO violations,
held that all defendants were jointly and severally
liable for the total amount of damages incurred by
each of the plaintiffs-purchasers.
Respondents-purchasers timely filed a petition for
rehearing. The Sixth Circuit requested and received
a response from the defendants and thereafter issued
a Supplemental] Opinion on August 31, 1989. The Sixth
Circuit increased the damage award in favor of six
purchasers in the total amount of $3,520 (for pay-
ments made to a nonparty on refinancing options) and
remanded for determination by the district court
whether the actual amount paid by two purchasers
was $4,500 (as set forth in the damage chart) or
$30,000 (as alleged in the petition for rehearing).
REASONS FOR GRANTING THE WRIT
1. The Requirement of a Pattern of Racketeering Ac-
tivity for Civil Liability Under RICO is Unconstitu-
tionally Vague.
This Court has addressed the pattern requirement
in civil RICO cases on two occasions. In Sedima, S.
P. R. L. v. Imrex Co., 473 U.S. 479 (1985), this Court
acknowledged that “‘in its private civil version, RICO
is evolving into something quite different from the
original conception of its enactors.’’ 473 U.S. at 500.
This Court attributed the “extraordinary” uses to
which civil RICO has been put, at least partially, to
the failure of Congress and the courts to develop a
meaningful concept of ‘‘pattern.’’ Jd. Subsequently, in
H. J., Ine. v. Northwestern Bell Telephone Co.,
__ U.S.___, 108 S.Ct. 1219, 57 US.L.W. 4951
(1989), this Court acknowledged that:
eee ree foes
1]
Congress has done nothing in the interim fur-
ther to illuminate RICO’s key requirement of
a pattern of racketeering; and as the plethora
of different views expressed by the Courts
of Appeals since Sedima demonstrates, see
n.2, supra, developing a meaningful concept
of “pattern’”’ within the existing statutory
framework has proved to be no easy task.
57 U.S.L.W. at 4952. The futile struggle by the lower
courts to define ‘‘pattern’’ and, with al] due respect,
the recent decision by this Court in Northwestern Bell,
demonstrate that no judge, no jury, and no person
can know with reasonable certainty what constitutes
a RICO “‘pattern.’’ The statute is incurably vague and
for that reason is unconstitutional.‘
This Court has recognized that a noncriminal stat-
ute is unconstitutionally vague under the due process
clauses of the Fifth and Fourteenth Amendments to
the Constitution of the United States where its lan-
guage does not convey sufficiently definite warning
as to the proscribed conduct. See, e.g., Keyishian v.
Board of Regents, 385 U.S. 589 (1967). A statute is
* Several courts of appeals have upheld the constitutionality
of the RICO statute in a criminal context. See, e.g., United States
v. Morelli, 643 F.2d 402 (6th Cir.), cert. denied, 453 U.S. 912
(1981); United States v. Aleman, 609 F.2d 298 (7th Cir. 1979),
cert. denied, 455 U.S. 946 (1980); United States v. Pantone, 609
F.2d 675 (38d Cir. 1979); United States v. Huber, 603 F.2d 387
(2d Cir. 1979), cert. denied, 445 U.S. 927 (1980); United States
v. Swiderski, 593 F.2d 1246 (D.D.C. 1978), cert. denied, 441
U.S. 933 (1979); United States v. Campanale, 518 F.2d 352 (9th
Cir. 1975), cert. denied, 423 U.S. 1050 (1976); United States v
Parness, 503 F.2d 430 (2d Cir. 1974), cert. denied, 419 U.S
1105 (1975).
12
unconstitutional if it lacks “terms susceptible of ob-
jective measurement,’ Cramp v. Board of Public In-
struction, 368 U.S. 278, 286 (1961), or where ‘‘men
of common intelligence must necessarily guess at its
meaning and differ as to its application.”’ Baggett v.
Bullitt, 377 U.S. 360, 366 (1964).
In his concurring opinion in Northwestern Bell, Jus-
tice Scalia pointed out that since RICO has criminal
applications it must, even in its civil applications, pos-
sess the degree of certainty required for criminal laws.
57 U.S.L.W. at 4957-58 (citing Federal Communica-
tions Com. v. American Broadcasting Co., 347 U.S.
284, 296, reh’g denied, 347 U.S. 905 (1954)). The ma-
jority of this Court virtually admitted that the pa-
rameters of the elements of ‘‘pattern’’ remain vague
and that potential defendants will be left guessing as
to its meaning and as to whether their conduct falls
within the concept:
The limits of the relationship and continuity
concepts that combine to define a RICO pat-
tern, and the precise methods by which re-
latedness and continuity or its threat may be
proved, cannot be fixed in advance with such
clarity that it will always be apparent
whether in a particular case a “pattern of
racketeering activity’ exists. The develop-
ment of these concepts must await future
cases, absent a decision by Congress to re-
visit RICO to provide clearer guidance as to
the Act’s intended scope.
57 U.S.L.W. at 4954. This language is just short of
a declaration that this element of RICO does not pos-
sess the degree of certainty required by the Consti-
13
tution and the fundamental principles of justice and
fair play.
In attempting to illuminate the elusive concept of
“pattern,” this Court in Northwestern Bell delved into
the legislative history of RICO which, it was said,
reveals Congress’ intent that “‘to prove a pattern of
racketeering activity a plaintiff or prosecutor must
show that the racketeering predicates are related, and
that they amount to or pose a threat of continued
criminal activity.”’ 57 U.S.L.W. at 4958. With respect
to the relatedness aspect of this proof requirement,
this Court found conspicuously absent in the text of
RICO any identification of forms of relationship or
external principles to be used in determining whether
racketeering activity falls into a pattern for purposes
of the Act. Jd. This Court inferred from this absence,
together with the relaxed limits to the pattern con-
cept in §1961(5), that Congress must have intended
to take a “flexible” approach and that it envisaged
that a pattern might be demonstrated by a “‘range”’
of different ordering principles or relationships be-
tween predicates. Jd. This Court ultimately borrowed
the following language from Title X of the Organized
Crime Control Act of 1970 to define the concept of
relatedness: ‘‘[C]riminal conduct forms a pattern if it
embraces criminal acts that have the same or similar
purposes, results, participants, violations, or methods
of commission, or otherwise are interrelated by dis-
tinguishing characteristics and are not isolated
events.”’ Jd. This definition is ‘utterly uninforma-
tive.” Id. at 4957 (Scalia, J., concurring). It and the
statement that Congress intended a ‘‘flexible’’ ap-
proach and that it envisaged a ‘‘range’’ of relation-
ships provides no more notice to potential RICO
14
defendants as to whether their conduct may constitute
a “‘pattern’’ than they possessed prior to Northwest-
ern Bell.
When it attempted to define what must be proved
by a plaintiff or prosecutor by way of continuity (a
concept this Court found more difficult to define than
relatedness), this Court acknowledged that “[t]his may
be done in a variety of ways, thus making it difficult
to formulate in the abstract any general test... .”
Id. at 4954.
The Court’s offering that “continuity” is both a
closed- and open-ended concept, referring either to a
closed period of repeated conduct, or to past conduct
that by its nature projects into the future with a
threat of repetition” similarly fails to provide any
more guidance as to what may constitute a pattern
than its attempt to define ‘“relatedness.”’
In addition to the fact that potential RICO
defendants will not be able to predict with any cer-
tainty whether their conduct constitutes a pattern,
this Court’s vain struggle to define the concept will
be multiplied countless times hence as the lower courts
attempt to instruct juries in RICO cases. The district
court charged the jury on the RICO pattern require-
ment as follows:
Section 1962(c) of Title 18 of the United
States Code provides in part that:
It shal] be unlawful for any person em-
ployed by or associated with any enterprise
engaged in, or the activities of which af-
fect, interstate ... commerce, to conduct
or participate, directly or indirectly, in the
15
conduct of such enterprise’s affairs through
a pattern of racketeering activity... .
*-_* *
To show that a defendant has violated section
1962(c), plaintiff must prove each of the fol-
lowing elements by a preponderance of the
evidence:
“ eee ee
1. conduct
| 2. of an enterprise
3. through a pattern
4. of racketeering activity.
| A plaintiff can only recover to the extent he
. has been injured in his business or property
by that conduct constituting the violation.
“A pattern of racketeering activity’ requires
more than one episode of criminal conduct
occurring within the past 10 years. Separate
acts in furtherance of the same criminal ep-
isode or transaction do not constitute a pat-
tern of racketeering activity under RICO.
| “Racketeering Activity’’ consists of no more
and no less than commission of a predicate
act i.e. criminal violation of a federal statute
concerning mail fraud or fraud by use of
communication devices [wire fraud].
This intruction stands in stark contrast to the prolix
explanation of the pattern requirement in Northwest-
ern Bell. An instruction on the pattern requirement
in conformity with this Court’s views in Northwestern
ii aia ai i i
16
Bell would, Petitioners respectfully submit, be such
that persons “of common intelligence must guess at
its meaning and differ as to its application.”
2. The Predicate Acts of Federal Mail Fraud and Wire
Fraud in a Civil RICO Action Must be Proven by
Clear and Convincing Evidence.
This case presents the Court with the opportunity
to decide an important issue of federal law: the ap-
propriate standard of proof to be applied in civil RICO
actions. ‘‘In the courts, the appropriate standard of
proof in the various forms of civil RICO actions are
not yet firmly settled, and the relevant considerations
are numerous.” Haroco, Inc. v. American Nat’l Bank
& Trust Co., 747 F.2d 384, 404 (7th Cir. 1984), affd
sub nom., 473 U.S. 606 (1985).
Petitioners argued on appeal to the Sixth Circuit
that the district court had erred in instructing the
jury that plaintiffs need only prove the predicate acts
of wire fraud and mail fraud by a preponderance of
the evidence. In rejecting Petitioners’ argument that
the burden of proof on these issues should be clear
and convincing evidence, the Sixth Circuit stated that
“(t]he Supreme Court has hinted, but not held,” that
the appropriate evidentiary standard was a prepon-
derance of the evidence. 879 F.2d at 1296 (citing
Sedima, S. P. R. L. v. Imrex Co., 473 U.S. 479, 491
(1985)).
This Court has never directly ruled on the appro-
priate standard of proof in civil RICO actions. In
Sedima, this Court rejected the view of the Second
Circuit that civil liability under RICO requires a prior
conviction of a predicate act and stated, in dictum:
“We are not at all convinced that the predicate acts
17
must be established beyond a reasonable doubt in a
proceeding under §1964(c).... But we need not de-
cide the standard of proof issue today.” 473 U.S. at
491. This statement has been taken by the lower fed-
eral courts to be a “strong suggestion” by this Court
that the proper burden of proof of predicate acts in
RICO litigation is by a preponderance of the evidence.
See, e.g., Liquid Air Corp. v. Rogers, 834 F.2d 1297,
1302 (7th Cir. 1987), cert. denied, __. U.S. __, 109
S.Ct. 3241 (1989); Wilcox v. First Interstate Bank,
N.A., 815 F.2d 522 (9th Cir. 1987); Cullen v. Mar-
giotta, 811 F.2d 698, 731 (2d Cir.), cert. denied, 483
U.S. 1021 (1987); Armco Industrial Credit Corp. v.
SLT Warehouse Co., 782 F.2d 475, 480-81 (5th Cir.
1986); United States v. Local 560, Int’l Brotherhood
of Teamsters, 780 F.2d 267, 279-80 n.12 (3d Cir. 1985),
cert. denied, 476 U.S. 1140 (1986); Ford Motor Co.
v. B & H Supply, Inc., 646 F. Supp. 975, 1001 (D.
Minn. 1986); Bosteve, Ltd. v. Marauszwski, 642 F.
Supp. 197, 202 n.7 (E.D. N.Y. 1986); Owl Constr. Co.,
Inc. v. Ronald Adams Contractor, Inc., 642 F. Supp.
475, 477 (E.D. La. 1986); Platsis v. E.F. Hutton &
Co., 642 F. Supp. 1277, 1309 (W.D. Mich. 1986), aff'd,
829 F.2d 13 (6th Cir. 1987), cert. denied, _ US.
—__._ , 108 S.Ct. 1227 (1988); Stainton v. Tarantino,
637 F. Supp. 1051, 1070 (E.D. Pa. 1986).
There are many sound and cogent reasons why a
clear and convincing evidence standard is required in
civil RICO actions. The instant case illustrates the
presumably common situation where a plaintiff alleges
both a RICO claim based on predicate acts of federal
criminal wire and mail fraud, and, a common law
fraud claim. The jury was instructed by the district
court that the elements of a RICO violation, including
18
the predicate acts, must be proven by a preponder-
ance of the evidence. The district court also instructed
the jury that common law fraud must be proven by
clear and convincing evidence and that fraud is never
presumed. Defendants were held liable for treble dam-
ages under RICO arising from predicate acts of fed-
era] criminal mai] and wire fraud, whereas, based on
the very same conduct, no liability for fraud at com-
mon law was found. This incongruous result arose
solely from the different burdens of proof on the fed-
era] statutory fraud and state common law fraud
claims.
The federalization of common law fraud by RICO
has been noted in this Court. Sedima, 473 U.S. at
501-502 (Marshall, J., dissenting). Prior to Erie R.R.
v. Tompkins, 304 U.S. 64 (1938), federal common law
required clear and convincing evidence of fraud. W1l-
cox v. First Interstate Bank, N.A., 815 F.2d 522, 534
(9th Cir. 1987) (Boochever, J., dissenting). To add to
this federalization the treble damage and attorneys
fees provisions of RICO and a lower standard of proof
is an incredible result.
In Santosky v. Kramer, 455 U.S. 745 (1982), this
Court identified the following factors to be considered
when determining whether a particular standard of
proof in a particular proceeding satisfies due process:
1) the private interests affected by the proceeding;
2) the risk of error created by the chosen procedure;
and 3) the countervailing governmental interest sup-
porting use of the challenged procedure. 455 U.S. at
754. Thus, in civil disputes over money damages with-
out more, application of a preponderance of the evi-
dence standard indicates society’s minimal concern
with the outcome and a conclusion that the litigants
ee ee
19
should share the risk of error in roughly equal fash-
ion. By contrast, this Court has mandated a higher
standard of proof—‘‘clear and convincing evidence’’—
when the individual interests at stake are both “‘par-
ticularly important” and ‘‘more substantial than mere
loss of money.” Jd. at 756. This Court has deemed
this level of certainty necessary to preserve funda-
mental fairness in a variety of proceedings that
threaten the individual involved with ‘‘a significant
deprivation of liberty” or “stigma.” Jd.
There can be no doubt but that a finding of liability
under RICO carries a heavy stigma. It is fundamen-
tally unfair to say that conduct that can be punished
as criminal] only upon proof beyond a reasonable doubt
need be proven only by a preponderance of the evi-
dence to impose civil liability under RICO. This un-
fairness is, by example, illustrated by a defendant who
is alleged to have committed two murders as the rea-
uisite predicate acts in a civil RICO suit. Sedima held
that a prior conviction of a predicate act is not a
prerequisite to civil liability under RICO. Thus, under
the standard applied by the courts of appeals and
district courts after Sedima, this defendant can be
found by a jury to have committed the underlying
predicate acts and be publicly stigmatized as a mur-
derer and racketeer only upon a mere “more probable
than not’’ standard.
The interests of defendants in RICO cases differ
qualitatively from the interests of defendants sued for
violations of other federal statutes, such as the federal
securities and antitrust laws in which a preponderance
of the evidence standard is applied. Cf, Herman &
MacLean v. Huddleston, 459 U.S. 375 (1983). Unlike
defendants in those other federal law actions, RICO
20
defendants risk emerging from the litigation ‘‘con-
victed” of at least two counts of a federal or state
felony.
The Seventh Circuit has suggested that requiring
private RICO plaintiffs to prove the elements of a
section 1962 violation beyond a reasonable doubt
“could address some of the legitimate concerns about
unfair stigmatization of defendants as ‘racketeers’ and
other abuses of RICO’s criminal dimensions through
civil proceedings.’’ Haroco, 747 F.2d at 404. “RICO
liability must be based, after all, on findings of crim-
inal conduct.” Id.
3. The Enterprise in a Civil RICO Action Must Have
an Ascertainable Structure Distinct from That In-
herent in the Pattern of Racketeering Activity. ©
This case presents this Court the opportunity to
address and to define the enterprise requirement and
to resolve a conflict between the federal courts of
appeals.
The Sixth Circuit in this case acknowledged there
exists a split of authority as to whether the “enter-
prise’ under RICO must have an “ascertainable struc-
ture, distinct from that inherent in the pattern of
racketeering activity.” 879 F.2d at 1297 n.4. This
requirement has been adopted by three circuits* and
rejected by two.’
* United States v. Tillett, 763 F.2d 628, 632 (4th Cir. 1985);
United States v. Bledsoe, 674 F.2d 647, 663-64 (8th Cir.), cert.
denied, 459 U.S. 1040 (1982); United States v. Riccobene, 709
F.2d 214, 223-24 (3d Cir.), cert. denied, 464 U.S. 849 (1983).
* United States v. Weinstein, 762 F.2d 1522, 1537 n. 18 (11th
Cir.), modified, reh’g denied in part, 778 F.2d 678 (1985), cert.
21
Respondents-purchasers failed to allege or other-
wise prove that the alleged enterprise was an entity
separate and distinct from the pattern of racketeering
activity in which they claimed the defendants were
engaged. The facts in this case point out precisely
why this Court and courts of appeals have required
that a RICO enterprise be separate and distinct from
the pattern of racketeering activity. Respondents-pur-
chasers alleged that all defendants, individually and
collectively, were enterprises. An amorphous “‘enter-
prise’” such as this, with no ascertainable structure,
merges into the “pattern of activity’’ so that neither
element is distinct or separable, causing the confusion
that manifested itself in the jury decision in this case.
From the pleadings it is unclear whom Respondents-
purchasers allege to be ‘‘persons’’ and whom they
allege to be “‘enterprises’” under RICO. In the first
cause of action under RICO, each of the 21 named
plaintiffs alleged that all of the defendants, both sep-
arately and in the aggregate, were ‘‘enterprises.’’ In
the second cause of action under RICO, the plaintiffs
seemed to allege, although it is not clear, that Messrs.
Feltner and Levine were persons who conducted and
participated in the affairs of the corporate defendants
described as ‘‘enterprises engaged in and whose ac-
tivities affect interstate commerce.”
The Sixth Circuit has stated that the distinction
between the “‘person” and the “‘enterprise’’ must be
described in RICO pleadings. 879 F.2d at 1296-97
(citing Bennett v. Berg, 685 F.2d 1053, 1061 (8th Cir.
denied, 475 U.S. 1110 (1986); and United States v. Bargaric,
706 F.2d 42, 55 (2d Cir.), cert. denied sub nom., 464 U.S. 840
(1983).
22
1982), on reh’g, 710 F.2d 1861, cert. denied, 464 U.S.
1008 (1983)). In addition, courts have been virtually
unanimous in holding that a defendant cannot be si-
multaneously the “enterprise,” against which dam-
ages are not recoverable, and a ‘“‘person’’ who
conducts the affairs of the enterprise through a pat-
tern of racketeering activity and against whom dam-
ages are properly recoverable. See, e.g., Bishop v.
Corbitt Marine Ways, Inc., 802 F.2d 122, 123 (5th
Cir. 1986); Bennett v. United States Trust Co., 770
F.2d 308, 315 (2d Cir. 1985), cert. denied, 474 U.S.
1058 (1986); Rae v. Union Bank, 725 F.2d 478, 481
(9th Cir. 1985); Haroco v. American Nat'l Bank &
Trust Co., 747 F.2d 384 (7th Cir. 1984), affd, 473
U.S. 606 (1985); B. F. Hirsch v. Enright Refining
Co., Inc., 751 F.2d 628 (3d Cir. 1984); United States
v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th
Cir. 1982), cert. denied, 459 U.S. 1105 (1983); Bennett
v. Berg, 685 F.2d 1053, 1061 (8th Cir. 1982), on reh’g,
710 F.2d 1861, cert. denied, 464 U.S. 1008 (1983).
Similarly, in H. J., Inc. v. Northwestern Bell Tele-
phone Company, _—_ U.S.__., 108 S.Ct. 1219, 57
U.S.L.W. 4951, 4952 n.1, this Court acknowledged
that the district court found plaintiffs’ complaint de-
fective because it failed to ‘“‘allege the existence of
an ‘enterprise’ separate and distinct from the ‘person
identified,’ but refused to express an opinion as to
the soundness of this holding.
Despite the overwhelming weight of authority hold-
ing that one may not simultaneously be a person and
an enterprise in a RICO action, Respondents-pur-
chasers accomplished this simultaneity in the instant
case. In their pleadings they alleged all defendants
were enterprises. If this were true, then none could
23
be a person against whom damages were recoverable.
By the same reasoning, if any one of the defendants
was the enterprise—a corporate defendant, for ex-
ample—then damages were not recoverable against it.
In this case, the jury assessed damages against all
named defendants.
In United States v. Turkette, 452 U.S. 576, 583
(1981), this Court stated that ‘‘the ‘enterprise’ is not
the ‘pattern of racketeering activity;’ it is an entity
separate and apart from the pattern of activity in
which it engages. The existence of an enterprise at
all times remains a separate element which must be
proved... .”’
In United States v. Riccobene, 709 F.2d 214, 223-
24 (3d Cir.), cert. denied, 464 U.S. 849 (1983), the
court, relying upon the above-quoted language from
Turkette, stated that to prove that an entity is sep-
arate and distinct from a pattern of racketeering ac-
tivity, the plaintiff must show that the entity ‘“‘has
an existence beyond that which is necessary merely
to commit each of the acts charged as predicate rack-
eteering offenses.”
This petition affords this Court the opportunity to
extend its prior holding on the nature of a RICO
enterprise and to resolve the conflict between the
courts of appeals as to whether proof of a distinct
“ascertainable structure”’ is required.
4. Joint and Several Liability is not Mandated in a Civil
RICO Action.
The Sixth Circuit raised sua sponte the question of
whether liability for a civil violation of RICO must
be joint and several. Despite the fact that RICO itself
does not address this issue and it was not raised on
24
appeal, the court held that the defendants were jointly
and severally liable for the total of all damages as-
sessed against each of them individually.
Along with interrogatories, the district court pre-
sented the jury with two charts to calculate damages,
if awarded, one under the RICO claims and one under
the Ohio common law fraud claims. Each chart con-
sisted of 19 horizontal columns, one for each plaintiff,
and five vertical columns, one for each defendant.
This grid of 95 separate calculations was completed
by the jury in assessing damages on the RICO claims.
The Sixth Circuit held that “‘[aJlthough there is little
direct law on this point, there are numerous RICO
criminal forfeiture cases which indicate that the na-
ture of the RICO offense mandates joint and several!
liability.’’ The Sixth Circuit thus concluded the district
court had erred in instructing the jury to award dam-
ages against each defendant separately and individ-
ually. 879 F.2d at 1301.
The Sixth Circuit’s reliance upon criminal forfeiture
cases to determine whether joint and several liability
is appropriate in a civil RICO case is misplaced. In-
stead of relying upon statutory provisions dealing with
criminal forfeiture, the court should have examined
federal statutes that impose civil liability in the same
manner as RICO, specifically the federal antitrust
statutes.
The legislative history of the private treble-damages
remedy found in RICO indicates that Congress “‘bor-
rowed"’ the remedy from the federal antitrust stat-
utes. Sedima, 473 U.S. at 486-88. The civil remedies
in the RICO bill passed by the Senate, S 30, were
limited to injunctive actions by the United States. Jd.
25
at 486. During hearings on S 30 before the House
Judiciary Committee, Representative Steiger pro-
posed the addition of a private treble-damages action
“similar to the private damage remedy found in the
anti-trust laws....’’ Jd. at 487 (citing Hearing on
S 30, and Related Proposals, before Subcommittee
No. 5 of the House Committee on the Judiciary, 91st
Cong., 2d Sess., 520 (1970)). In summarizing the bill
on the House floor, its sponsor described the treble-
damages provision as “‘another example of the anti-
trust remedy being adapted for use against organized
criminality."” Sedima, 473 U.S. at 487 (citing 116
Cong. Rec. 35295 (1970)).
The treble-damages provision of RICO tracks vir-
tually word for word the treble-damages provision of
the antitrust laws, §4 of the Clayton Act. As the
dissent recognized in Sedima, the parallel] between
these two statutes offers “‘little doubt that the latter
served as a model for the former.’’ Sedima, 473 U.S.
at 510. Thus, it is aphoristic that an interpretation
of the private-damages provision of the antitrust laws
would prove helpful in interpreting the private-dam-
ages provision of RICO.
In Texas Industries, Inc. v. Radcliff Materials, Inc.,
451 U.S. 630 (1981), this Court held that antitrust
defendants against whom civil damages, costs, and
attorney's fees had been assessed had no right to
contribution under federal statutory or common law.
The principles of contribution and of joint and several
lability are related concepts dealing with apportion-
ment of damages among tortfeasors. The application
of these concepts with respect to federal] statutes can
arise in only two ways: first, through the affirmative
creation of such doctrines by Congress, either ex-
26
pressly or by clear implication; or, second, through
the power of the federal courts to fashion a federal
common law establishing such principles. See North-
west Airlines, Inc. v. Transport Workers Union, 451
U.S. 77, 90-91 (1981).
This Court concluded in Texas Industries that Con-
gress neither expressly nor implicitly intended to cre-
ate a right to contribution under antitrust laws. This
Court held that the federal common law did not create
such a right in such actions. Instead, this Court, after
examining the detailed and specific remedial provi-
sions of antitrust laws and finding that they did not
address the issue of contribution, held that neither
the Sherman Act nor the Clayton Act conferred on
federal courts the right to contribution.
The presumption that a remedy was delib-
erately omitted from a statute is strongest
when Congress has enacted a comprehensive
legislative scheme including an integrated
system of procedures for enforcement. (Ci-
tation omitted).
-_s *
There is nothing in the statute itself, in its
legislative history, or in the overall regula-
tory scheme to suggest that Congress in-
tended courts to have the power to alter or
supplement the remedies enacted.
Texas Industries, 451 U.S. at 645.
Similarly, there is nothing in the RICO statute it-
self, or its legislative history, or its overall regulatory
scheme to suggest that Congress intended for
defendants to be jointly and severally liable for vio-
27
lations of the Act. Indeed, the RICO provision on
private damages is virtually identical to the private
damages provision in the federal antitrust laws. If
Congress had intended to include the common law
tert concepts of contribution and joint and several
liability in civil RICO, it would have specifically pro-
vided therefor. See Miller v. Affiliated Financial
Corp., 624 F. Supp. 1008, 1004 (N.D. Ill. 1985) (con-
tribution is not available as to RICO liability).
Even if the common law tort principle of joint and
several liability can be applied in RICO cases, it should
not be applied in the instant case, where the jury
went to great length to make 95 separate damage
calculations—one set for each of the 19 plaintiffs
against each of the five defendants.
It is an axiomatic principle of tort law that ‘“‘where
the independent concurring acts have caused distinct
or separate injuries to the plaintiff, or where some
reasonable means of apportioning the damages is ev-
ident, the courts generally will not hold the tortfeasors
jointly and severally liable.” Harper, James & Gray,
The Law of Torts §10.1 at 5 (1986) (emphasis added).
An appellate court cannot sua sponte impose joint and
several liability upon the defendants after the jury
has apportioned the damages among them.
In holding that the defendants were jointly and
severally liable, the Sixth Circuit applied by analogy
criminal RICO cases imposing joint and severai lia-
bility with respect to forfeitures. The court’s reliance
upon these cases is questionable at best. First, valid
issues have been raised as to whether the imposition
of joint and several liability is proper in the criminal
context at all. See United States v. Caporale, 806 F.2d
1487, 1507 (11th Cir. 1986). Second, the goals sought
28
to be accomplished by criminal RICO and the method
used to attain such goals are different than those
sought to be accomplished by civil RICO. For in-
stance, as discussed above, the standard of proof re-
quired in a criminal RICO case of beyond a reasonable
doubt is far more stringent than the preponderance
of the evidence standard of proof applied in the in-
stant civil RICO case.
If criminal and civil RICO were both designed to
punish, as Respondents-purchasers have suggested,
the Sixth Circuit properly recognized that the appli-
cation of the treble multiplier to damages is sufficient
to accomplish this purpose. 879 F.2d at 1299. To im-
pose joint and several liability in addition to this tre-
bling provision goes beyond any punitive purpose
intended by Congress. This is especially true for a
defendant whose involvement in an alleged pattern of
racketeering activity is either partial or minimal, but
because of the insolvency of more culpable defendants,
is required to pay the entire amount of damages
awarded. Such a rule is simply and, manifestly unfair:
under it, Oliver Twist and each of Fagin’s boys, as
well as Fagin himself, would be liable to pay all of
the money pickpocketed, regardless of who snatched
it or who among them kept it.
CONCLUSION
Based upon the foregoing, Petitioners respectfully
submit that a writ of certiorari should issue to review
the judgment of the United States Court of Appeals
for the Sixth Circuit.
29
Respectfully submitted,
RICHARD BOYDSTON
Counsel of Record
SHAWN M. YOUNG
JOHN JAY FOSSETT
Strauss & Troy
2100 Central Trust Center
201 East Fifth Street
Cincinnati, Ohio 45202-4186
(513) 621-2121
Attorneys for Petitioners
C. Elvin Feltner, Jr.,
Palm Beach Properties, Inc., and
Metropolitan Properties, Inc.
No. 87-4060
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
Harry E. FLeiscHHaver, et al
ON APPEAL from the
Plainuffs-Appellee:
United States District
\ > Court for the South-
= . or sctr ‘ ¢ f
C. ELVIN FELTNER, JR., et al mg District of Ohi
Defendants-Appellant estern Divisior
Decided and Filed June 27, 1989
Before: KRUPANSKY and WELLFORD. Circuit Judge
and JOINER,*® Senior District Judge
WELLFORD, Circuit Judge. This appea! follows a
verdict awarding appellees treble damages of $3,951,351 0
for RICO violations associated with appellees’ participation
in appellants’ film investment program. Appellants raise sev-
eral issues regarding liability and damages. We affirm the |ia-
bility determination, except as to Krypton, and reverse, in
part, the damages award
*The Honorable Charies W. Joiner, Senior United States District
Judge for the Eastern District of Michigan, sitting by designation
2a
Il. FACTS
This controversy arose when 19 separate plaintiffs pur-
chased non-theatrical rights to the distribution of 23 full
length feature motion pictures and television episodes from
five defendants.’
The rights in the films the plaintiffs purchased included
the right to distribute the films on television and cable televi-
sion, by video cassette, and for other viewing except in movie
theaters. Most plaintiffs entered into contracts with either
Metropolitan or Palm Beach in November or December of
1980, but Donald Forrester entered into a contract with Met-
ropolitan in early 1981.
The five defendants all allegedly participated in the market-
ing and sale of the film rights to the plaintiffs. Metropolitan
and Palm Beach sold to the plaintiffs the distribution rights
to the films. Krypton was not incorporated until September
28, 1982, but it is alleged, nonetheless, that Krypton was
actively engaged in the film marketing plan as early as
November of 1980. Feltner was the sole shareholder, a direc-
tor and the chairman of the three defendant corporations.
Mr. Levine, an attorney, was an officer of each defendant cor-
poration.
In October, 1980, Levine mailed a packet of information
to Fleischhauer, an investment advisor, on the availability
of the films in question. Levine followed up the mailing by
telephoning Fleischhauer. As a result of that conversation,
Levine mailed Fleischhauer a “full kit” detailing the terms
of the film program offered. Fleischhauer contacted Donald
Forrester, his accountant and a certified professional accoun-
tant, to review the full kit. Levine then traveled to Cincinnati
1The defendants are: C. Elvin Feltner, Jr., Robert J. Levine, Palm
Beach Properties, Inc., a/k/a Palm Beach Films, Inc. (Palm Beach),
Metropolitan Properties, Inc., a/k/a Metropolitan Films, Inc. (Metro-
politan), and Krypton Corporation (Krypton).
3a
in November to discuss the investment with Fleischhauer
and Donald Forrester and afterward Fleischhauer checked
references Levine furnished.
In the agreement reached at the meeting, Fleischhauer was
to receive a 10% commission on each sale Metropolitan made
and a 20% commission on each sale Palm Beach made.
Fieischhauer agreed to share the commissions with Donald
Forrester. Fleischhauer received $56,000 in commissions on
sales of the film rights to the plaintiffs. At oral argument,
appellees noted that no evidence was admitted indicating that
Fleischhauer paid any commissions to Donald Forrester. All
other plaintiffs were initially advised of the investment
opportunity by Fleischhauer or by Donald Forrester.
Most plaintiffs received their information either directly
or indirectly (through Fleischhauer or Forrester) from the full
investment kit, in which a written explanation of the prospec-
tive: investment was set forth. This kit is over 100 pages long
and contains material relating to the tax benefits of the trans-
action, a list of film titles available, a purchase and sale agree-
ment, copies of financing options, a 64 page legal opinion
and miscellaneous questions, answers and examples.
The transaction was described by the seller defendants as
a purchase for both income and tax advantage purposes to
be financed through an initial “down payment,” the balance
expected to be paid with interest from revenues generated
by the buyers’ distribution activity over a ten year period.
The purchase prices and down payments varied depending
upon the nature of the film.? The standard form contract
included a provision for making the down payment in install-
ments. Buyer plaintiffs were to take full responsibility for
arranging the distribution of the film. Sellers represented that
plaintiffs could enter into further distribution contracts pro-
?The required down payment was, generally, approximately five per-
cent higher in a sale by Palm Beach than one offered by Metropolitan.
4a
viding that the distributor would retain 40% of the gross reve-
nues without any reimbursement of expenses.
The kit issued by defendants explained that a plaintiff
could obtain a refinancing agreement with an unaffiliated
entity, Southwest Capital Corporation, in the event revenues
were not sufficient to pay the purchase price over the ten year
period. It also addressed the tax implications of the purchase
and discussed K/JRO, Inc. v. Commissioner, 51 T.C. 155
(1968). (Under that decision, the owner of film distribution
rights was permitted under certain circumstances to deduct
100% of the purchase price of the films over 7 years at a rate
of 60% in the first year, 15% in the second year, and 5% for
each of the following five years.)
Through the kit materials furnished, defendants also
advised interested parties that there was a significant chance
that the purchaser would be audited by the Internal Revenue
Service because of earlier abuses regarding production and
distribution of motion pictures. Defendants offered to con-
vert liability on the purchase contract from full recourse to
nonrecourse in the event the IRS disallowed anticipated
deductions and write-offs on the investment. A condition of
that conversion option was that the purchaser plaintiff must
contest the IRS determination.
A list of numerous distributors was provided to Fleisch-
hauer, but it was expected that those films which were epi-
sodes in a series would be handled by a single distributor.
In the event all episodes in a series were not sold, the seller
agreed to make the unsold episodes available to the purchas-
er’s distributor.
A number of the plaintiffs testified that they never spoke
with either Feltner or Levine prior to purchasing their film
and that they relied solely on the advice of Fleischhauer.
Plaintiff Ralph testified that he spoke to neither Feltner nor
Levine before purchasing his film but relied solely on the
advice of Fleischhauver and Donald Forrester and his own
5a
review of the kit. Several plaintiffs testified that they spoke
with Levine before signing his contract on limited subjects
such as selection of film or the distribution process. Only four
plaintiffs, including the Forresters and Fleischhauer, spoke
with Feltner before purchasing their film rights.
There was no evidence about the identity of the particular
seller in the case of four other plaintiffs.? Six plaintiffs pur-
chased their films from Metropolitan; the remaining plain-
tiffs purchased their films from Palm Beach.
All plaintiffs allegedly entered intitially into distribution
contracts with Joseph Green Film Enterprises, Inc. (Green)
which was not named as a defendant. Access letters were pro-
vided to Green for the benefit of all plaintiffs in order that
Green could obtain access to the films, but Green failed to
secure distribution of any of the films because many unautho-
rized copies of the films were available to those who wished
to use them and the copies plaintiffs purchased were of poor
quality. Testimony was offered that Levine knew, before the
films were sold, that the films were not marketable either
because they were unauthorized copies or because unautho-
rized copies were readily available.
Because they were unsuccessful in efforts to distribute or
lease the films, several plaintiffs who had made only partial
down payments withheld the balances within a few months
after execution of their contracts. Others testified that
although they obtained options with Southwest Capital Cor-
poration to extend the ten year period in which the contract
balance was to be paid, they subsequently failed to pay the
required annual fee to preserve that option.
As a result of their failure and resulting frustration in
effecting distribution of their films, plaintiffs were solicited
>There were also six plaintiffs as to which there was no contract iden-
tified, offered, or admitted into evidence.
6a
by Bruce Forrester and Donald Forrester to pursue this litiga-
tion against defendants seeking compensatory and punitive
damages and attorney’s fees, based on RICO charges and
Ohio common law fraud.
Appellants have submitted a chart, which is attached as
an appendix, compiled from trial testimony and exhibits, set-
ting out pertinent data concerning each plaintiff, the purchase
price involved, the actual payment made to defendant or
defendants, whether that plaintiff who claimed tax write-offs
was audited, a purported outline of tax treatment, and dam-
age awards rendered (before any trebling of the award under
RICO). Appellees have not challenged appellants’ computa-
tions. In all, fourteen of the nineteen investors were audited
by the Internal Revenue Service, which disallowed very sub-
stantial deductions claimed. The bulk of damages awarded
to plaintiffs was against defendant Feltner. Donald Forrester,
as an extreme example, paid nothing on his investment of
$162,500, yet claimed $97,500 worth of tax benefits which
have been challenged by IRS. Donald Forrester was awarded,
nonetheless, almost $171,500 in damages subject to trebling.
Fleischhauer invested some $138,500, paid only $200 and
claimed $40,000 in tax benefits, which was challenged by
IRS. He was awarded $56,754 in damages (apart from com-
missions and trebling). Total damages awarded all plaintiffs,
before trebling, against the defendants was $1,317,117.00.
Of the nineteen investments made, fourteen of the nineteen
investors were audited by the Internal Revenue Service for
deductions taken relating to their film purchase.
The first RICO claim by each plaintiff alleges, in part, as
follows:
Defendants “... John Does and Jane Does, enter-
prises engaged in and whose activities affect inter-
state commerce, did conduct and participate in their
affairs through a ‘pattern of racketeering activity,’
as that term is defined in 18 U.S.C. §§ 1961(1) and
1961(5), and in so doing, violated 18 U.S.C. § 1962”
thereby entering plaintiffs and their business [and,
further, that].
“... defendants, acting as a group and constituting
an enterprise as that term is defined in 18 U.S.C.
§ 1961(4)” devised a scheme to defraud each plain-
tiff “in a manner prohibited by 18 U.S.C. §§ 1341
and 1343 and thereby violated 18 U.S.C. § 1962.”
The second RICO claim by each plaintiff alleges, in part,
that:
“for purpose of executing the aforesaid scheme”
Messrs. Feltner and Levine “utilized, or caused to
be utilized, the United States Mail facilities in inter-
state commerce on two or more occasions and
thereby violated 18 U.S.C. §§ 1341, 1343, and 1962”
{and further, that]
Messrs. Feltner and Levine “did conduct and partic-
ipate in the affairs of” defendants, “enterprises
engaged in and whose activities affect interstate
commerce, through ‘pattern of racketeering activ-
ity,” as that term is defined in 18 U.S.C. § 1961(1)
and § 1961(5), through a scheme, artifice, and device
to defraud” and, in so doing, “injured plaintiffs in
their business and property.”
Defendants requested the district Gowft to instruct the jury
that the burden of proof for plaintiffs on their RICO claims
as in the case of their state law fraud claims, was by clear
and convincing evidence. The district court instead adopted
a preponderance of the evidence standard. Defendants also
F moved for a directed verdict, both at the conclusion of plain-
tiffs’ case and of defendants’ case. A primary basis for the
motion, on the part of Krypton, was that it had not been
formed as a corporate entity until well after the sales to plain-
tiffs.
8a
In closing argument to the jury, plaintiffs contended that
the damages they sustained were the actual total purchase
price of the films acquired, plus the down payments actually
paid, plus the penalty and interest they incurred in tax
charges and “everything they had to go through and are still
going through” as a result of the alleged wrongdoing by defen-
dants.
Submitted to the jury with the instructions were ten sepa-
rate interrogatories, five on the RICO claims, five on the com-
mon law fraud claims, and two separate damages charts, one
for the RICO claims and the other for common law fraud
claims.
The jury answered these interrogatories by indicating that
all defendants had violated the RICO statute and had com-
mitted both mail fraud and wire fraud (except that there was
no wire fraud on the part of Krypton), and that all plaintiffs
had been affected by either such mail or wire fraud. The jury
at the same time did not find any defendant had committed
fraud under Ohio law.
The district court then entered an order trebling the dam-
ages in favor of each plaintiff against each defendant to pro-
duce a total money judgment in the amount of $3,951,351.
It is unclear how damages were calculated and what basis
existed for the differentiation between the defendants in dam-
ages allocation. Defendants filed post-trial motions for
directed verdict, judgment notwithstanding the verdict and
for a new trial. The district court denied all of defendants’
post-trial motions and this appeal ensued.
II. LIABILITY
Under 18 U.S.C. § 1962(c), it is unlawful:
for any person employed by or associated with any
enterprise engaged in, or the activities of which
affect, interstate or foreign commerce, to conduct
9a
or participate, directly or indirectly, in the conduct
of such enterprise’s affairs through a pattern of rack-
eteering activity. ...
The terms “enterprise,” “person,” “racketeering activity,”
and “pattern of racketeering activity” are defined in 18
U.S.C. § 1961, as follows:
(1) “racketeering activity” means... (B) any act
which is indictable under any of the following provi-
sions of [18 U.S.C.]: ... section 1341 (relating to
mail fraud), section 1343 (relating to wire fraud)
(3) “person” includes any individual or entity
capable of holding a legal or beneficial interest in
property;
(4) “enterprise” includes any individual, part-
nership, corporation, association, or other legal
entity, and any union or group of individuals associ-
ated in fact although not a legal entity;
(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 (exclud-
ing any period of imprisonment) after the commis-
sion of a prior act of racketeering activity, ....
A private right of action is provided for a person injured
in his business or property by reason of a RICO violation.
18 U.S.C. § 1964(c).
On appeal appellants raise several questions regarding civil
RICO liability: (1) did the judge instruct the jury properly
on the evidentiary standard; (2) have plaintiffs differentiated
between liable “persons” and the RICO “enterprise”; (3) have
plaintiffs proven the existence of a RICO “pattern”; and (4)
10a
is Krypton, an unformed corporation, a “person” liable for
RICO violations.
A. Burden of Proof
Appellants claim that the district court erred in instructing
the jury that plaintiff must prove each of the predicate wire
aid mail fraud violations by a preponderance of the evi-
dence. They contend that because this RICO action is prem-
ised upon federal wire and mail fraud—criminal offenses that
have no corresponding private rights of action—a higher
standard of proof is required. They also contend that the
court should have adopted the burden of proof applicable
to state law fraud actions. This is essentially the position
advocated in a dissent to a RICO decision in the Ninth Cir-
cuit. See Wilcox v. First Interstate Bank of Oregon, N.A., 815
F.2d 522, 532-35 (9th Cir. 1987) (Boochever, J., dissenting).
We reject these contentions; a preponderance standard is
the appropriate standard of proof. The Supreme Court has
hinted, but not held, that this is the appropriate evidentiary
standard. The Court stated: “We are not at all convinced that
the predicate acts must be established beyond a reasonable
doubt in a proceeding under § 1964(c). In a number of set-
tings, conduct that can be punished as criminal only upon
proof beyond a reasonable doubt will support civil sanctions
under a preponderance standard.” Sedima, S.P.R.L. v. Imrex
Co., 473 U.S. 479, 491 (1985). Other circuits specifically
addressing this issue have followed the Court’s suggestion.
See Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1302 (7th Cir.
1987); Wilcox, 815 F.2d at 531; Cullen v. Margiotia, 811 F.2d
698, 731 (2d Cir.), cert. denied, 107 S. Ct. 3266 (1987); Armco
Industrial Credit Corp. v. SLT Warehouse Co., 782 F.2d 475,
480-81 (Sth Cir. 1986); United States v. Local 560, Int'l Broth-
erhood of Teamsters, 780 F.2d 267, 279-80 n.12 (3d Cir.
1985), cert. denied, 476 U.S. 1140 (1986). Appellants’ conten-
tions were raised, discussed and rejected in Liguid Air, and
we are in agreement. 834 F.2d at 1301-03.
lla
B. Distinguishing RICO “Persons” from the RICO
“Enterprise”
Appellants argue that plaintiffs’ pleadings do not ade-
quately describe the “enterprise” and the “persons” partici-
pating in the “enterprise.” Only “persons” can be held liable
for RICO violations; the “enterprise” itself is not liable. 18
U.S.C. § 1962(c). See, e.g., Yellow Bus Lines, Inc. v. Local
Union 639, 839 F.2d 782 (D.C. Cir.), cert. denied, 109 S. Ct.
309, (1988). The “person” and the “enterprise” must be sepa-
rate and different entities. See, e.g., United States v. Feldman,
853 F.2d 648, 656 (9th Cir. 1988), cert. denied, 109 S. Ct.
1164 (1989). This distinction must be described in the plead-
ings. Bennett v. Berg, 685 F.2d 1053, 1061 (8th Cir. 1982),
cert. denied, 464 U.S. 1008 (1983).
The pleadings ia this case satisfactorily describe and distin-
guish the “persons” and the “enterprise.” The statute defines
an “enterprise” as “any individual, partnership, corporation,
association, or other legal entity, and any union or group of
individuals associated in fact although not a legal entity.” 18
U.S.C. § 1961(4). We believe the pleadings adequately state
that each of the five defendants was a “person” and together
they formed a racketeering “enterprise.” An enterprise must
be merely “an ongoing organization, formal or informal.”
United States v. Turkette, 452 U.S. 576, 583 (1981). In this
case, Metropolitan, Palm Beach, Krypton, Levine and Felt-
ner comprised such a group. See also Feldman, 853 F.2d at
655-56 (individuals and corporations can associate to create
RICO “enterprise”).
Appellant contends that the “enterprise” alleged and
proven was not sufficiently distinct from the “person”—in
other words, because Feltner owned 100% of the corpora-
tions, they were the equivalent of his “right arm,” with whom
he could not “conspire.” See United States v. Computer Sci-
ences Corp., 689 F.2d 1181, 1190 (4th Cir. 1982), cert. denied,
459 U.S. 1105 (1983). Such argument has no merit; the fact
12a
that Feltner owned 100% of the corporations’ shares does not
vitiate the fact that these corporations were separate legal
entities. See Feldman, 853 F.2d at 656 (stating, “[i]f one cor-
poration possesses an existence separate from its incorpora-
tor, clearly a group of corporations formed by defendant is
also distinct”); United States v. Benny, 786 F.2d 1410 (9th
Cir.), cert. denied, 479 U.S. 1017 (1986); McCullough v. Suter,
757 F.2d 142, 143-44 (7th Cir. 1985). Clearly, the jury had
ample basis to find that all defendants were collectively, the
“enterprise.”
C. The Existence of a RICO “Pattern”
Appellants contend that their conduct did not amount to
a “pattern of racketeering activity” required for RICO liabil-
ity. 18 U.S.C. § 1962(c). The statute defines “pattern of racke-
teering activity” as “at least two acts of racketeering activity”
occurring within a ten year period. 18 U.S.C. § 1961(5).
Despite the language of the statute, the Supreme Court has
stated that “while two acts are necessary, they may not be
sufficient. Indeed, in common parlance two of anything do
not generally form a ‘pattern.’ ” Sedima, 473 U.S. at 496 n.14.
Instead, quoting legislative history, the Court observed that
“We note that-there is a split of authority as to whether the
“enterprise” must have an “ ‘ascertainable structure,’ distinct from that
inherent in the pattern of racketeering activity.” United States v. Bled-
soe, 674 F.2d 647, 665 (8th Cir.), cert. denied, 459 U.S. 1040 (1982).
Such a requirement of “ascertainable structure” has been adopted in
United States v. Tillett, 763 F.2d 628, 632 (4th Cir. 1985); Bledsoe,
674 F.2d at 665; United States v. Riccobene, 709 F.2d 214, 223-24 (3d
Cir.), cert. denied, 464 U.S. 849 (1983); it has been rejected in United
States v. Weinstein, 762 F.2d 1522, 1537 n.13 (11th Cir.), modified,
778 F.2d 673 (1985), cert. denied, 475 U.S. 1110 (1986), and United
States v. Bargaric, 706 F.2d 42, 55 (2d Cir.), cert. denied sub nom.,
464 U.S. 840, (1983).
Because appellant has failed to raise this as a basis for reversal we
need not address this troublesome issue.
13a
isolated incidents of “racketeering activity” do not implicate
Congress’ concerns about organized crime infiltrating legiti-
mate business activity. Therefore, it repeated the language
of the Senate Report stating “ ‘[i]t is this factor of continuity
plus relationship which combines to produce a pattern.” ” Jd.
(emphasis added by Court).
The Supreme Court has heard argument on a case dealing
with the “pattern” requirement and will perhaps provide
additional guidance in the application of the “continuity plus
relationship” test. See H. J., Inc. v. Northwestern Beil Tele-
phone Co., 829 F.2d 648 (8th Cir. 1987), cert. granted, 108
S. Ct. 1219 (1988).
In the meantime, however, we believe that the Third and
Seventh Circuits have correctly ascertained the Court’s incli-
nations regarding the “pattern” requirement. “In determining
whether the predicate acts are sufficiently continuous and
related ... [the following factors are relevant]: the number
and variety of predicate acts and the length of time over
which they were committed, the number of victims, the pres-
ence of separate schemes and the occurrence of distinct
injuries.” Liguid Air, 834 F.2d at 1304; see Environmental
Tectronics v. W. S. Kirkpatrick, Inc., 847 F.2d 1052, 1063
(3d Cir. 1988) (stating, “a court should consider a combina-
tion of specific factors such as the number of unlawful acts,
the length of time over which the acts were committed, the
similarity of the acts, the number of victims, the number of
perpetrators, and the character of the unlawful activity”); see
also Sedima, 473 U.S. at 496 n.14 (suggesting that courts
define “pattern” with the language employed in Liguid Air).*
*We also note that some circuits have adopted a literal, and
extremely lenient, interpretation of the pattern requirement: two predi-
cate acts in a related endeavor. See United States v. lanniello, 808 F.2d
184, 190 (2d Cir. 1986), cert. denied sub nom., 107 S. Ct. 3229 (1987):
California Architectural Bldg. Products v. Franciscan Ceramics, Inc.,
818 F.2d 1466, 1469 (9th Cir. 1987), ceri. denied, 108 S. Ct. 698 (1988)
l4a
We believe that appellants’ conduct was of a magnitude
sufficient to exhibit a “pattern of racketeering activity.” The
jury found that each defendant had committed wire and mail
fraud (except Krypton which committed only mail fraud)—
9 separate acts, each constituting a “racketeering activity.”
All 19 plaintiffs (excluding spouses) were alleged victims of
mail fraud and wire fraud.* Two specified individuals, two
corporations and Krypton were embroiled in this scheme.
The acts occurred over a period of time; the solicitations
began in October 1980; the sales occurred between November
1980 and early 1981; the contract envisioned a 10-year rela-
tionship between defendants and plaintiffs.’ We conclude
that these acts, even though arguably in furtherance of a sin-
gle scheme to defraud a class of investors, constituted a suffh-
cient “pattern of racketeering activity.”
We also reject any contention that a “pattern” requires
“multiple schemes.” See H. J., Inc., 829 F.2d at 650; Jnt’]
Data Bank, Lid. v. Sepkin, 812 F.2d 149 (4th Cir. 1987);
United States v. lanniello, 808 F.2d 184, 192 (2d Cir. 1986);
cert. denied, 107 S. Ct. 3229, 3230 (1987); Bank of Amer.
v. Touche Ross & Co., 782 F.2d 966, 971 (11th Cir. 1986);
®See, e.g., Calif. Architectural Bldg. Prods., 818 F.2d at 1469 (where
defendants made multiple fraudulent sales to multiple victims, activity
was a “pattern”); see also Bank of Amer., 782 F.2d at 971 (pattern
requirement satisfied when defendants prepared false reports which
they knew would be mailed to victims).
”See, e.g., Bank of Amer., 782 F.2d at 971 (where acts of wire and
mail fraud extended over three years, the pattern requirement was sat-
ished).
*See, e.g., Barticheck v. Fidelity Union Bank/First Nat. State, 832
F.2d 36, 38 (3d Cir. 1987) (investment fraud scheme involving misrep-
resentations to 20 investors was “pattern” of racketeering activity);
United Energy Owners Comm., Inc. v. United Energy Mngmni., 837
F.2d 356 (9th Cir. 1988) (single scheme, involving multiple victims,
to defraud through solar energy tax shelter program met pattern
requirement).
;
——E LL
—
15a
Sun Sav. & Loan Ass'n v. Dierdorff, 825 F.2d 187 (9th Cir.
1987); Calif. Architectural Bldg. Prods., Inc. v. Franciscan
Ceramics, Inc., 818 F.2d 1466, 1469 (9th Cir. 1987);
Barticheck v. Fidelity Union Bank/First Nat. State, 832 F.2d
36, 39 (3d Cir. 1987) (pattern need not involve more than
one unlawful scheme). In Hospital Employees’ Divison of
Local 79 v. Mercy Memorial Hospital Corp., 862 F.2d 606,
608-09 (6th Cir. 1988) and Hofstetter v. Fletcher, No.
87-3502, slip op. (6th Cir. Oct. 14, 1988), we have implicitly
rejected a multiple scheme requirement.
We find that the scheme was significant enough to consti-
tute a “pattern of racketeering activity,” although we concede
it is a close question.
D. Liability of Krypton
Krypton, in its motion for a directed verdict and j.n.o.v.,
claimed that it could not be liable because it was not yet
incorporated during the existence of the alleged scheme. The
district court denied the motions holding Krypton liable as
a “de facto” corporation.
RICO allows parties injured by RICO violations to recover
from the RICO violators, but only “persons” can violate
RICO. 18 U.S.C. § 1962(c) and § 1964(c). “Person” is defined
to include “any individual or entity capable of holding a legal
or beneficial interest in property.” 18 U.S.C. § 1961(3).
Under the uncontested circumstances of this case, we hold
Krypton to be entitled to a directed verdict. During all times
relevant to the RICO violations, Krypton, as an entity, did
not have the capacity to hold either legal or beneficial title
to property. It follows that Krypton could not violate RICO
because it was not a legal “person.”
Although a de facto corporation under Ohio law can hold
property, under the facts here, a de facto corporation could
not have existed. See 11 Ohio Jur. 3d, Business Relationships
l6a
§ 36 (1979) (stating, “a de facto corporation posesses all of
the power and authority of a de jure corporation”). In order
for a corporation to have de facto status, however, three con-
ditions must be fulfilled: there must be: (1) a general law
under which a corporation may lawfully exist; (2) a good faith
attempt to organize under the law and a colorable compliance
with the statutory requirements; and (3) actual use or exercise
of corporate privileges. Read v. Tidewater Coal Exchange.
Inc., 116 A. 898 (Del. Ch. 1922); Society Perun v. Cleveland,
3 N.E. 357 (Ohio 1885); Henn & Alexander, Laws of Corpora-
tions § 140 (3d ed. 1983); 11 Ohio Jur. 3d, Business Relation-
ships § 40 (1979).
The record makes no indication that there was a good faith
attempt to organize or to comply with the statutory require-
ments. The only evidence in the record was the two letters
written on Krypton stationery and Feltner’s remark that he
thought he told his lawyer to incorporate Krypton. These
efforts fall far short of any good faith attempt to incorporate.
There is nothing else in the record to indicate that Krypton
was any kind of entity capable of holding legal or beneficial
title to property.
Whatever Krypton was, it was a part of the enterprise, but
it was not a “person” associated with such “enterprise.” It
cannot, then, be held liable, although individuals who owned
and/or operated this entity may have had liability.
Ill. DAMAGES
The defendants vigorously contend that the award of dam-
ages cannot stand because plaintiffs paid out, cumulatively,
only $211,700 and yet were awarded nearly six times this
total in actual damages. Plaintiffs simply assert that damages
are not confined to the amount appellees paid in down pay-
ments, and that the purpose of the RICO statute is to punish
offending defendants. Plaintiffs have failed to set out with
particularity the tax adjustments and have offered little proof
17a
to indicate what reasonable return could be expected on their
investment (if and when paid for).
Even if we accept the principle that RICO damages are
designed to punish, we require plaintiffs in RICO cases to
set Out a reasonable and principled basis of recovery. The
effective means of punishing a defendant in the civil RICO
context is to apply the treble multiplier to damages estab-
lished by competent proof, not based upon mere speculation
and surmise.
18 U.S.C. § 1964(c) states that “Any person injured in his
business or property by reason of a violation of section 1962
of the chapter may sue therefore 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.” We begin our consideration of the damage
award with reference to the statutory standard, which, we
concede is not very enlightening.
The measure of damages under civil RICO has been
described as the harm occasioned as a result of the predicate
acts of the offenders. Sedima, S.P.R.L. v. Imrex Co., 473 U.S.
479, 497 (1985). A plaintiff injured by civil RICO violations
deserves a “complete recovery.” Carter v. Berger, 777 F.2d
1173, 1176 (7th Cir. 1985); see Liguid Air, 834 F.2d at 1310.
Courts have interpreted this statute to mean that a plaintiff
may recover only the “damages flowing directly from the
predicate acts.” Volk v. D. A. Davidson & Co., 816 F.2d 1406,
1415 (9th Cir. 1987); Haroco, Inc. v. American Nat'l Bank
& Trust Co., 747 F.2d 384, 398 (7th Cir. 1984) aff'd, 473 U.S.
606 (1985); DeMent v. Abbott Capital Corp., 589 F. Supp.
1378, 1386 (N.D. Ind. 1984). Recovery for physical injury
or mental suffering is not allowed under civil RICO because
it is not an injury to business or property. See e.g. Drake v.
B. F. Goodrich, 782 F.2d 638, 644 (6th Cir. 1986).
As a general rule, RICO plaintiffs are entitled only to dam-
ages to business or property proximately caused by the predi-
18a
cate acts. See Haroco, 473 U.S. at 609. Applying this rule
to the circumstances of this case we believe that plaintiffs’
damages should be limited to the amounts actually invested.
Appellants indicate that plaintiffs collectively paid out to
defendants only $211,700; plaintiffs do not challenge these
computations.
Plaintiffs contend that the jury intended to award them
expectancy or “benefit of the bargain” damages. Although in
some cases expectancy damages might be appropriate, clearly
they are not in this case. One district court case is especially
illustrative of this point. In Heinhold v. Perlstein, 651 F.
Supp. 1410 (E.D. Pa. 1987), the court dismissed a case
because the plaintiff failed to show how defendant’s conduct
caused him any injury. Plaintiffs similarly have failed here.
The conduct of the defendants in the case at bar caused the
parties to invest in the films but it did not cause the invest-
ment items to become less profitable than defendants repre-
sented. As in Heinhold, the fraud could not simultaneously
induce plaintiffs to invest and reduce the value of the invest-
ment’s object. There was ample warning about risks involved,
particularly tax hazards, therefore, expectancy damages are
not recoverable under these circumstances. In addition, there
was no realistic evidence presented as to a reasonable value
or estimate of lost profits or of the “bargain” based on anal-
ogy, experience, or practice.
Plaintiffs also contend that they are entitled to future tax
benefits and the penalties associated with the IRS actions
against them. Once again, we cannot say that these expenses
were caused by the illegal predicate acts. Appellants’ fraudu-
lent conduct was confined to representations of the value of
the films sold to plaintiffs. Parties remain “free to arrange
[their] financial affairs to minimize [their] tax liability,”
Stranahan v. Commissioner, 472 F.2d 867, 869 (6th Cir.
1973), and plaintiffs were not mislead about tax conse-
quences, particularly, Donald Forrester, the C.P.A. The evi-
dence unequivocally indicates that plaintiffs were truthfully
19a
advised of the risks associated with the investment’s tax treat-
ment. This case is very different from Hofstetter v. Fletcher,
No. 87-3502, slip op. (6th Cir. Oct. 14, 1988), in which the
fraudulent acts were representations, which defendants knew
were false, that plaintiffs could eliminate their federal tax lia-
bility by purchasing a life insurance policy in conjunction
with the formation of a home-based business and deducting
household expenses as business expenses.
During closing argument before the jury, plaintiffs asserted
that they were entitled to damages for “everything they had
to go through and are still going through” as a result of the
alleged wrongdoing. To the extent that this was an invitation
for physical injury or mental suffering, it was improper; these
damages are not allowed under RICO because they are not
injuries to business or property. Drake v. B. F. Goodrich Co.,
782 F.2d 638, 644 (6th Cir. 1986).
After addressing the extent of plaintiffs’ damages, appel-
lants contend that damages should be reduced by the amount
of tax benefits plaintiffs received. We disagree. In Randall
v. Loftgaarden, 478 U.S. 647 (1986), the Supreme Court held,
in a securities case, that the rescissory recovery should not
be reduced by tax benefits received from a tax shelter invest-
ment. The court articulated several reasons for its decision.
First, tax benefits are not “income.” The securities law at
issue stated that the amount of recovery would be consider-
ation paid less income received. See id. at 651-52, 658; 15
U.S.C. § 772). This factor is not specifically relevant in the
RICO context. Second, however, at common law tax benefits
were not a direct product of the security. Randall, 478 U.S.
at 658. And third, the statute seeks rescission plus deterrence,
therefore, denying defendants the benefit of offsetting tax
benefits generated by their illegal offering is an appropriate
result. See also Freschi v. Grand Coal Venture, 767 F.2d 1041
(2d Cir. 1985); vacated, 106 S. Ct. 3325, on remand, 800 F.2d
305, reconsidered, 806 F.2d 17 (Supreme Court remanded
to determine tax question in light of Randall and Sedima).
20a
Plaintiffs’ award should not be reduced by tax benefits, if any,
received.
Finally, the district court also erred in instructing the jury
to award damages against each defendant separately and in-
dividualiy. Although there is little direct law on this point,
there are numerous RICO criminal forfeiture cases which
indicate that the nature of the RICO offense mandates joint
and several liability. See United States v. Caporale, 806
F.2d 1487, 1506-09 (11th Cir. 1986), cert. denied, 482 U.S.
917 (1987); United States v. Benevento, 663 F. Supp. 1115,
1118-19 (S.D.N.Y. 1987), 836 F.2d 129 (2d Cir. 1988);
see also Beneficial Standard Life Ins. Co. v. Madarriaga,
851 F.2d 271, 272 (9th Cir. 1988) (civil RICO liability
assessed joint and severally); cf, Texas Industries, Inc. v.
Radcliff Materials, Inc., 451 U.S. 630, 638-46 (1981) (no
right to contribution implied under Sherman or Clayton Act);
Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77,
86-99 (1981) (no right to contribution implied under Equal
Pay Act or Title VII); Miller v. Affiliated Financial Corp.,
624 F. Supp. 1003, 1004 (N.D. Ill. 1985) (contribution is
not available as to RICO liability, relying on Texas Industries
and Northwest Airlines). Defendants all participated in the
‘enterprise’ responsible for the RICO violations; awarding
damages separately between each plaintiff and defendant is
inconsistent with the nature of the injury appellants inflicted
and brings about a danger of multiplying damages before
they are trebled.°
%It is an interesting question as to whether the award to Fleischhauer
should be reduced by the commissions he received. Upon reflection,
we conclude that Fleischhauer may be compensated for the time he
spent promoting the program on the theory that loss to his time was
damage to his business induced by defendants’ conduct.
2la
CONCLUSION
We AFFIRM the jury’s verdict on all liability issues with
the exception of Krypton. We REVERSE the judgment as
to Krypton. We also REVERSE the damages determination;
plaintiffs are entitled to damages, assessed jointly and sever-
ally against defendants, equal to their investment in the pro-
gram, in the amount of $211,700. Based on RICO principles,
this award will be trebled, the amounts to be allocated based
on the schedule attached reflecting the total payments made
by each plaintiff.
22a
APPENDIX
Damage Awards (without trebling) (R.6!)
Purchase Actual Damages Damages
Price/ Down Against Againsi Total
Down Payment C. Elvin Each of Againsi All
Plaintiff/ Payment Made Tax Felner, Other 4 Defendanis
Transcript Due Audit Tax Jr. Defendants
Testumony Treatment (seperately)
1. Natividad $65,000/ $6,000 yes received $10,048 + $2,512 = $20,096
Aumentado $12,500 benefits; x4
(Tr. after audit
1096-1097) $3,578 in
(stipulation) interesi &
penalties
paid
2. Ken W 65,007 5,000 yes received 26,929 + 6,732 = $3,857
Chambers 12,500 benefits; x4
(Tr. audit
921-931) pending
3. Gordon 350,500/ @35,000 yes received 43,166 + 10,792 = 86,334
M. Earte 68,000 (Tr. benefits, x4
tr. 233, total tax
199-253) 240) Savings
unknown
(Tr.241-245,
248); after
audit
approx
$35,000
owed
(Tr.212-215,
800 $38.
4. Harry E 129, 200 yes 38,998 in 28,378 + 7,094 = 56,754
Puucnhenael 8,600 (Tr.484) benefis x4
(Tr. received;
628-697) after audit
(Ts $26,000 tax,
840-869) $25,000 ”
(Tr. interest,
875-921) $3,000
penalty paid
(Tr. 910,
919-20)
$. Bruce |. 65,0007 1,300 yes $50,00 in 14,833 + 3,708 = 29,665
- Forrester 10,000 benefits x4
(Tr. (Tr. received;
942-989) 964) after audit
$50,000 in
tmterest &
es —
sf” (Tr.
96 5-966)
6. Donald 162,507” O yo $97,500 in 85,732 + 21,433 = 171,464
Forresier 2,500 benefits x4
(Tr. received,
1048-1052) audit
(Tr. pending
1064-1095) with
poteaual
payment duc
(Tr
1008-1015)
Dennis 65,000/
M 12,500
Charles 65,000/
(stipulation)
c= 65,000/
Lee 12,500
(Tr.
$12-$47)
3,000
12,500
$,000
25,000
$,000
no
yes
yes
23a
Forrester
received
benefits, in
excess of
$12,500
cash net
profi (Tr
1013-1014)
received
benefits;
after audit
received,
$34,000
received
benefits,
after audi
benefits
disallowed
$20,000 in
federal tax
benefits
received (Tr
$37)
17,166
37,742
14,488
41,878
26,929
28,394
3,622
10,469
6,732
75 486
28.976
83.754
04.479
$6.786
14 Charts
Muciier
(Tr
931-942)
(Tr
(Tr
253-319)
TUTALS
65,000 § 6,000
12,500
65000 12500
12.500
200.000 35,0008
6500N 12.500
ss 4000
$2,085, 750621 1.700
$346 oi
‘4
yewno
>
RUE
24,259
$2,747
25.510
4
x4
+ 922%
4
+ 20.68)
$io4.264
«4
46519
= 165.495
- $id?
= #85017
eee
FOOTNOTES:
2.
3.
Received commissions on all sales to plaintiffs and others in the
amount of $55,858 (JTX-62) (Tr. 1288)
Stipulation (Tr. 51)
Balance of $8200 to be paid through offset on commissions duc
(JTX-115)
. Joint return filed in 1980 for Bruce Forrester and Kathiecen Forrester
per the former (Tr. 964-965), and separate return per the latier (Tr.
911)
. Paid $25,000 by Charles Eppling and $10,000 by George Renker
(nothing paid by REF or Donald Forrester) (Tr. 1036)
. No tax paid by REF or by Donald Forrester as general partner,
Charlies Eppling paid $106,668 and George Renker paid $113,114
to IRS
26a
SUPPLEMENTAL OPINION
Issued August 31, 1989
In our original opinion in this case, we affirmed the
jury’s verdict on liability issues, with the exception of
Krypton Corporation’s liability which we reversed, and we
reversed the damages determination finding that the evi-
dence could not support the amount of damages the jury
awarded. We held that in civil actions under the Racketeer
Influenced Corrupt Organizations Act, a successful —
is “entitled to damages to business or property proxi
mately caused by the predicate acts,” andi daily tnd
severally. Under the evidence introduced at that trial, we
concluded that the plaintiffs were entitled, for the most
part, to recover the “amounts actually invested,” subject
to trebling. To assist the district court in modifying its
judgment on remand, we attached to the opinion, as an
Appendix, a chart summarizing the evidence presented re-
lating to these amounts.
Appellees filed a motion for rehearing on July 11, 1989,
to which this court requested a response from appellants.
A response was filed on July 28, 1989. Appellees asked
the panel to reconsider some of the Appendix entries in
light of information in the transcript not previously brought
to the attention of the panel. Appellants conceded several
of appellees’ objections in their response.
In light of appellants’ concessions and our evaluation of
the other points raised in appellees’ motion to reconsider,
ve et ee the opinion to reflect the fol-
lowing payments several of the appellees made to South-
west Capital Corporation. The following appellees should
be credited with having paid the amounts in parentheses
following their names in addition to the amounts reflected
in the Appendix: Bruce I. Forrester ($254); Dennis M.
Harrington ($630); Roger Houston ($1,416); Charles Muel-
27a
ler ($600); Daniel E. & Carol Ann Wright ($410); and
Joseph Reisinger ($210).
Appellees also contest the amount of down payments
made by Bruce I. Forrester and Kathleen D. Forrester.
The precise amounts of their down payments should be
determined by the district court on remand.
In all other respects the Court’s opinion is AFFIRMED.
28a
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION -
Civil No. C-1-84-0872
Harry Fleischhauer, Et al.,
Plaintiffs,
v.
Elvin Feltner, Jr., Et al.,
Defendants.
ORDER
This matter is before the Court upon consideration of
the jury award attached hereto as Chart A. In accordance
therewith and in accordance with 18 U.S.C. § 1964 the
Court does order that each of such damages award be and
it is hereby tripled resulting in an award of damages as
attached in Chart B.
In addition to the foregoing, Plaintiffs are hereby
awarded their costs and a reasonable attorney fee.
Plaintiffs’ counsel is directed to submit to the Court within
thirty (30) days of the date of this Order a statement
setting forth in detail the legal services rendered and the
appropriate costs therefor.
IT IS SO ORDERED.
/s/ Carl B. Rubin
Carl B. Rubin, Chief Judge
United States District Court
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3la
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
CASE NUMBER: C-1-84-0872
HARRY FLEISCHHAUER ET AL.
v.
ELVIN FELTNER, JR. ET AL.
JUDGMENT IN A CIVIL CASE
©) Jury Verdict. This action came before the Court for a
trial by jury. The issues have been tried and the jury
has rendered its verdict.
@ Decision by Court. This action came to trial or hearing
before the Court. The issues have been tried or heard
and a decision has been rendered.
IT IS ORDERED AND ADJUDGED that the jury award
be TRIPLED. Further ORDERED that plaintiffs are
AWARDED their costs and reasonable attorney fees.
Plaintiff's counsel is DIRECTED to submit to the
Court within 30 days a statement seting forth in
detail the legal services rendered and appropriate
costs. .
August 13, 1987 Kenneth J. Murphy, Clerk
Date Clerk
/s/ Paul Hennessy
(By) Deputy Clerk
32a
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
Civil No. C-1-84-0872
Harry Fleischhauer, Et al.,
Plaintiffs,
v.
Elvin Feltner, Jr., Et al.,
Defendants.
FILED
KENNETH J. MURPHY
CLERK
OCT 29 1:47 PM ‘87
U.S. DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIV. CINCINNATI
ORDER
This matter is before the Court on a motion for a di-
rected verdict, judgment not withstanding the verdict and
for new trial by defendant C. Elvin Feltner, Jr., Robert
J. Levine, Palm Beach Properties, Inc., (also know as Palm
Beach Films, Inc.), Metropolitan Properties, Inc., (also
known as Metropolitan Films, Inc.), and Krypton Prop-
erties, Inc. (doc. 65) and upon Krypton Corporation’s mo-
tion for directed verdict and/or judgment notwithstanding
the verdict and in the alternative for a new trial (doc. 67).
Plaintiff responded to such motions by document 71 and
defendants have replied by documents 72 and 73. Upon
33a
consideration of the foregoing motions, the Court deter-
mines that defendants were accorded a fair trial and that
the jury was properly instructed as to the applicable law.
The determination by the jury was consistent with the
evidence presented and with the instructions of the Court.
Accordingly, such motions are hereby DENIED.
Plaintiffs’ counsel has submitted a statement for services
in accordance with the judgment entered August 13, 1987.
Such statement, however, does not comply with the re-
quirements of this Court and must be resubmitted pur-
suant to Section III of the “Instructions for Trial
Preparation in the Court of Carl B. Rubin, Chief Judge’’.
Plaintiffs’ counsel have presented a chronological state-
ment which is incapable of review by this Court. Plaintiffs’
counsel are hereby granted thirty days within which to
refile such request in accordance with this Court’s Instruc-
tions.
IT IS SO ORDERED.
/s/ Carl B. Rubin
Carl B. Rubin, Chief Judge
United States District Court
34a
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
No. 87-4060
HARRY E. FLEISCHHAUER, et al.,
Plaintiffs-Appellees,
v.
C. ELVIN FELTNER, JR., et al.,
Defendants-A ppellants.
FILED
JUN 27 1989
LEONARD GREEN, Clerk
Before: KRUPANSKY and WELLFORD, Circuit Judges; and
JOINER, Senior District Judge.
JUDGMENT
ON APPEAL from the United States District Court for
the Southern District of Ohio.
THIS CAUSE came on to be heard on the record from
the said district court and was argued by counsel.
ON CONSIDERATION WHEREOF, It is now here ordered
and adjudged by this court that the judgment of the said
district court in this case be and the same is hereby af-
firmed in part and reversed in part.
Each party is to bear its own costs on appeal.
ENTERED BY ORDER OF THE COURT
Leonard Green, Clerk
/s/ Leonard Green
Clerk
35a
Issued as Mandate: September 25, 1989 A True Copy.
COSTS None Attest:
SIND cccuvscanssacpeswossensd $ /s/ Gary McCarthy
IIE: bit cialitnnsssacosbynccancs $ Deputy Clerk
36a
18 U.S.C. §1961. Definitions
(1) ‘racketeering activity’’ means (A) any act or threat
involving murder, kidnapping, 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
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 (relat-
ing 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 1512 (relating to tampering with
a witness, victim, or an informant), section 1513 (relating
to retaliating against a witness, victim, or an informant),
section 1951 (relating to interference with commerce, rob-
bery, or extortion), section 1952 (relating to racketeering),
section 1953 (relating to interstate transportation of wag-
ering paraphernalia), section 1954 (relating to unlawful
welfare fund payments), section 1955 (relating to the pro-
hibition of illegal gambling businesses), section 1956 (re-
lating to engaging in monetary transactions in property
derived from specified unlawful activity), sections 2312 and
2318 (relating to interstate transportation of stolen motor
vehicles), sections 2314 and 2315 (relating to interstate
transportation of stolen property), section 2320 (relating to
trafficking in certain motor vehicles or motor vehicle parts),
sections 2341-2346 (relating to white slave traffic), (C) any
=
37a
act which is indictable 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 connected with a case under title 11, fraud in the
sale of securities, or the felonious manufacture, importa-
tion, receiving, concealment, buying, selling, or otherwise
dealing in narcotic or other dangerous drugs, punishable
under any law of the United States; or (E) any act which
is indictable under the Currency and Foreign Transactions
Reporting Act;
(2) “State” means any State of the United States, the
District of Columbia, the Commonwealth of Puerto Rico.
any territory or possession of the United States, any po-
litical subdivision, or any department, agency, or instru-
mentality thereof;
(3) “person” includes any individual or entity capable of
holding a Jegal or beneficial interest in property;
(4) “enterprise”’ includes any individual, partnership, cor-
poration, association, or other legal entity, and any union
or group of individuals associated in fact although not a
legal entity;
(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
imprisonment) after the commission of a prior act of rack-
eteering activity;
(6) ‘unlawful debt’? means a debt (A) incurred or con-
tracted in gambling activity which was in violation of the
law of the United States, a State or political subdivision
thereof, or which is unenforceable under State or Federa!
law in whole or in part as to principal or interest because
38a
of the laws relating to usury, and (B) which was incurred
in connection with the business of gambling in violation
of the law of the United States, a State or political sub-
division thereof, or the business of lending money or a
thing of value at a rate usurious under State or Federal
law, where the usurious rate is at least twice the enforce-
able rate;
(7) “racketeering investigator’”’ means any attorney or
investigator so designated by the Attorney General and
charged with the duty of enforcing or carrying into effect
this chapter;
(8) “racketeering investigation’”’ means any inquiry con-
ducted by any racketeering investigator for the purpose
of ascertaining whether any person has been involved in
any violation of this chapter or of any final order, judg-
ent, or decree of any court of the United States, duly
entered in any case or proceeding arising under this chap-
ver;
(9) ‘documentary material” includes any book, paper,
document, record, recording, or other material; and
(10) ‘Attorney General” includes the Attorney General
of the United States, the Deputy Attorney General of the
United States, any Assistant Attorney General of the
United States, or any employee of the Department of Jus-
tice or any employee of any department or agency of the
United States so designated by the Attorney General to
carry out the powers conferred on the Attorney General
by this chapter. Any department or agency so designated
may use in investigations authorized by this chapter either
the investigative provisions of this chapter or the inves-
tigative power of such department or agency otherwise
conferred by law.
18 U.S.C. §1962. Prohibited activities
(a) It shal] be unlawful for any person who has received
any income derived, directly or indirectly, from a pattern
39a
of racketeering activity or through collection of an unlaw-
ful debt in which such person has participated as a prin-
cipal within the meaning of section 2, title 18, United
States Code, to use or invest, directly or indirectly any
part of such income, or the proceeds of such income, in
acquisition of any interest in, or the establishment or op-
eration of, any enterprise which is engaged in, or the
activities of which affect, interstate or foreign commerce.
A purchase of securities on the open market for purposes
of investment, and without the intention of controlling or
participating in the contro] of the issuer, or of assisting
another to do so, shal] not be unlawful under this sub-
section if the securities of the issuer held by the purchaser,
the members of his immediate family, and his or their
accomplices in any pattern of racketeering activity or the
collection of an unlawful debt after such purchase do not
amount in the aggregate to one percent of the outstanding
securities of any one class, and do not confer, either in
law or in fact, the power to elect one or more directors
of the issuer.
(b) It shal] be unlawful for any person through a pattern
of racketeering activity or through collection of an unlaw-
ful debt to acquire or maintain, directly or indirectly, any
interest in or contro] of any enterprise which is engaged
in, or the activities of which affect, interstate or foreign
commerce.
(c) It shal] be unlawful for any person employed by or
associated with any enterprise engaged in, or the activities
of which affect, interstate or foreign commerce, to conduct
or participate, directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of racketeering ac-
tivity, or collection of unlawful debt.
(d) It shall be unlawful for any person to conspire to
violate any of the provisions of subsections (a), (b), or (c)
of this section.
40a
18 U.S.C. §1964 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 shal] recover threefold the damages he sustains and
the cost of the suit, including a reasonable attorney’s fee.
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.