1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

1-18-1995

Jaguar v Royal Oaks Motor Car

Precedential or Non-Precedential:

Docket 93-5783

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"Jaguar v Royal Oaks Motor Car" (1995). 1995 Decisions. Paper 13.

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UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

_________________ 

NO. 93-5783 

_________________ 

JAGUAR CARS INC. 

v. 

ROYAL OAKS MOTOR CAR COMPANY, INC.; 

THEODORE J. FORHECZ, SR.; 

MARK FORHECZ; 

THEODORE J. FORHECZ, JR.; 

RICHARD KIRSH; JACK RUSHER; 

EDWARD ZELLER 

 Mark M. Forhecz, Appellant

___________________ 

No. 93-5784 

___________________ 

JAGUAR CARS INC. 

v. 

ROYAL OAKS MOTOR CAR COMPANY, INC.; 

THEODORE J. FORHECZ, SR.; 

MARK FORHECZ; 

THEODORE J. FORHECZ, JR.; 

RICHARD KIRSH; JACK RUSHER; 

EDWARD ZELLER 

 Theodore J. Forhecz, Sr., Appellant

_____________________________________ 

On Appeal From the United States District Court 

For the District of New Jersey 

(D.C. Civ. No. 91-cv-02014) 

_____________________________________ 

Argued: July 25, 1994 

Before: BECKER, ALITO, Circuit Judges, 
and BRODY, District Judge.

*

(Filed January 18, 1995) 

 CARL J. CHIAPPA, ESQUIRE (Argued) 

 Townley & Updike 

 450 Lexington Avenue 

 New York, NY 10174 

 Attorney for Jaguar Cars

 GARY R. BATTISTONI, ESQUIRE (Argued) 

 Drinker, Biddle & Reath 

 1345 Chestnut Street 

 Philadelphia National Bank Bldg. 

 Philadelphia, PA 19107-3496 

 Attorney for Theodore J. Forhecz, Sr.

 MARTIN G. MARGOLIS, ESQUIRE (Argued) 

 STUART POBERESKIN, ESQUIRE 

 Margolis, Meshulam & Pobereskin 

 60 Pompton Avenue 

 Verona, New Jersey 07044 

 Attorney for Mark M. Forhecz

 ____________________________ 

 OPINION OF THE COURT 

 ____________________________ 

BECKER, Circuit Judge. 

 This appeal arises out of a civil RICO action, 18 

U.S.C.A. § 1951 et. seq. (1984), brought by plaintiff, Jaguar 

Cars, Inc. ("Jaguar"), against Theodore Forhecz, Sr., and his 

sons Theodore Forhecz, Jr. and Mark Forhecz, alleging that they 

 

*. Honorable Anita B. Brody, United States District Judge for 

the Eastern District of Pennsylvania, sitting by designation. 
had perpetrated a scheme to systematically submit fraudulent 

warranty claims to Jaguar through their jointly owned Jaguar 

dealership, Royal Oaks Motor Car Company, Inc. ("Royal Oaks") in 

violation of RICO sections 1962(c) and (d). A jury awarded 

Jaguar damages of $1.1 million against Theodore Forhecz, Sr. 

("Theodore, Sr.") and $900,000 against Mark Forhecz ("Mark").1 

In its final judgment, the district court molded the verdict to 

reflect treble damages for the RICO violations, as required by 18 

U.S.C.A. § 1964(c) (1984). 

 Theodore, Sr. contends that the evidence was legally 

insufficient to find him liable of the RICO predicate acts of 

aiding and abetting mail fraud. Additionally, Theodore, Sr. and 

Mark ("the defendants") contend that Jaguar's RICO claims were 

legally insufficient because Jaguar failed to establish 

sufficient distinctiveness between the defendant "persons," 

allegedly liable for the RICO violations, and the "enterprise" 

through which those persons acted. This latter contention 

requires us to reconsider our interpretation of the civil RICO 

statute in light of evolving Supreme Court precedent. More 

particularly, we are faced with the question whether this court's 

jurisprudence concerning the distinctiveness requirement of 18 

U.S.C.A. § 1962(c) (1988), see Glessner v. Kenny, 952 F.2d 702, 

710 (3d Cir. 1991), survived the Supreme Court's opinions in 

 

1. Theodore Forhecz, Jr. was in charge of sales and reported to 

his brother Mark. Theodore, Jr. was absolved of RICO violations 

by the district court and is not a party to this appeal. 
Reves v. Ernst & Young, 113 S.Ct. 1163 (1993) and National 

Organization for Women v. Scheidler, 114 S.Ct. 798 (1994). 

 Because we decide that this court's application of the 

distinctiveness requirement of § 1962(c) to corporate officers 

and directors does not survive Reves and Scheidler, and because 

we are, therefore, satisfied that corporate officers/employees, 

such as the defendants, may properly be held liable as persons 

managing the affairs of their corporation as an enterprise 

through a pattern of racketeering activity, we will affirm. 

 I. FACTS AND PROCEDURAL HISTORY

 Theodore, Sr. was the 51% owner and president of the 

Royal Oaks dealership. The remaining 49% of the dealership was 

owned by Mark and Theodore, Jr. Mark was the general manager of 

Royal Oaks and ran the day-to-day operations of the dealership. 

In managing Royal Oaks, Mark reported to his father, who was the 

president and majority shareholder. Theodore, Sr. was actively 

involved in the operation of the dealership, earning a salary of 

roughly one-half million dollars a year for his services. 

Theodore, Sr. spent between twenty-five and thirty hours a week 

at Royal Oaks and met with Mark on a daily basis to discuss the 

dealership's operations. 

 The trial record demonstrated that the Royal Oaks 

dealership, through the actions of its employees, perpetrated a 

widespread scheme from as early as 1987 through May 1991 to 

defraud Jaguar through the submission of thousands of fraudulent 

warranty claims. Under this scheme, warranty claims were 

continuously submitted to Jaguar for the cost of labor and parts 
for alleged repairs that were either unnecessary, were never 

actually performed, or were performed on cars that were no longer 

under warranty. The scheme included submitting fictitious timesheets, doctoring the warranty paperwork submitted to Jaguar, and 

altering new parts to make them look old and in need of 

replacement. Additionally, an outside sublet paint-and-body 

shop, Kolorworks, and its owner, Linda Kucharski, assisted the 

defendants by helping them construct fraudulent warranty claims 

for Royal Oaks to submit to Jaguar. 

 In total, Royal Oaks defrauded Jaguar in an amount of 

between one and two million dollars,2 enabling Royal Oaks to 

generate hundreds of thousands of dollars of warranty income per 

month and to maintain extremely lucrative salaries for the 

defendants through periods of declining sales income even though 

its work bays were often empty and its technicians idle. The 

 

2. The one to two million dollar estimate comes from testimony 

that between 30% and 60% of the warranty repairs at the 

dealership were fraudulent, combined with evidence that during 

this period Jaguar paid a total of $3,487,080 to Royal Oaks for 

warranty claims. We reject defendants' contention on appeal that 

this evidence was too uncertain and speculative to support the 

jury's verdict of $1.1 million against Theodore, Sr. and $900,000 

against Mark. Jaguar's inability to give exact data on the fraud 

was due to the defendants' secretive scheme in which the 

paperwork for legitimate and fraudulent transactions was 

identical. It is well settled that in such circumstances "the 

jury may make a just and reasonable estimate of the damage based 

on relevant data." Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 

251, 264, 66 S.Ct. 574, 580 (1946); see also Danny Kresky 

Enterprises Corp. v. Magid, 716 F.2d 206, 213 (3d Cir. 1983) 

("[P]laintiffs must be free to select their own damage theories 

as long as they are supported by a reasonable foundation."). 

Given the evidence presented by Jaguar, we conclude that the jury 

had a reasonable foundation on which to base its verdict. 
evidence presented at trial demonstrated that actual work had 

declined to a point where there were few, if any, cars in the 

service department. 

 Correspondingly, in order to occupy their time, the 

dealership's ten service technicians regularly sat at their 

workbenches reading magazines, or congregated to pitch coins, 

play ping-pong, softball, or operate electronic cars. 

 In October 1990, Jaguar began to suspect fraud at Royal 

Oaks and, in an unprecedented move, sent a team of officials into 

the dealership for an entire week to watch every repair being 

made. In order to avoid detection, the defendants placed a load 

of new cars in the service areas for mock repairs, so that the 

area looked full and technicians were kept busy while Jaguar's 

representatives were at the dealership. Such actions along with 

other modifications and refinements to the fraudulent scheme 

allowed the fraud to continue until May of 1991. 

 After discovering the fraud and terminating the 

dealership in May of 1991, Jaguar brought suit in the District 

Court for the District of New Jersey alleging violations of RICO 

sections 1962(c) and (d). Section 1962(d) prohibits conspiring 

to violate sub-section (c). 18 U.S.C.A. § 1962(d) (West Supp. 

1994). Accordingly, the viability of Jaguar's section (d) claim 

depends on the legal sufficiency of its § 1962(c) claim. 

 As noted above, the jury awarded damages against 

Theodore, Sr. and Mark on Jaguar's RICO claims. The district 

court upheld the jury's award in response to the defendants' 

post-trial motions for judgment as a matter of law under Fed R. 
Civ. Proc. 50(a) or for a new trial under Fed. R. Civ. Proc. 59. 

This appeal from the judgment and from the district court's order 

denying the defendants' post-trial motions followed. 

 II.

 The defendants contend that Jaguar's RICO claims were 

legally insufficient in that Jaguar failed to allege a violation 

of § 1962(c) by "persons" operating or managing a distinct 

"enterprise." Since this is a question of law, we exercise 

plenary review. See Lightning Lube, Inc. v. Witco Corp., 4 F.3d 

1153, 1166 (3d Cir. 1993). Section 1962(c) provides, in relevant 

part: 

 It shall be unlawful for any person employed 

by or associated with any enterprise engaged 

in, or the activities 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 activity. . . . 

18 U.S.C.A. § 1962(c) (1984). 

 It is uncontested, on appeal, that Royal Oaks conducted 

"a pattern of racketeering activity" which affected interstate 

commerce. Given that § 1962(c) requires conduct by a "person

employed by or associated with any enterprise," the issue is 

whether Jaguar has alleged activity by both a person and an 

enterprise. "Person" includes "any individual or entity capable 

of holding a legal or beneficial interest in property." 18 

U.S.C.A. § 1961(3) (1984). "Enterprise" includes "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.A. § 1961(4) (1984). 

A. 

 This court first addressed § 1962(c)'s requirement to 

plead persons distinct from an enterprise in Hirsch v. Enright 

Refining Co., 751 F.2d 628, 633 (3d Cir. 1984). In Enright, a 

jewelry manufacturer brought an action alleging fraudulent 

misrepresentation and a corresponding violation of § 1962(c) 

against a lone defendant -- a corporation engaged in metal 

refining. In Enright we concluded that the defendant corporation 

could not be liable under § 1962(c) in that "the `person' subject 

to liability cannot be the same entity as the `enterprise.'" Id.

at 633. Because the person charged with liability in Enright, 

the corporate defendant, was "the same entity as the entity 

fulfilling the enterprise requirement," we reversed the § 1962(c) 

RICO judgment in favor of the plaintiff. Id. at 633. 

 In Enright we articulated two grounds in support of our 

holding. The first was a literal reading of the statute: "the 

language contemplates that the `person' must be associated with a 

separate `enterprise' before there can be RICO liability on the 

part of the `person.'" Id. The second ground was a belief that 

Congress intended to limit RICO's application to preventing the 

infiltration of legitimate organizations by criminal and corrupt 

organizations: "[i]t is in keeping with that Congressional scheme 

to orient section 1962(c) toward punishing the infiltrating 

criminals rather than the legitimate corporation which might be 
an innocent victim of the racketeering activity in some 

circumstances." Id. 

 In Sedima v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275 

(1985), the Supreme Court foreclosed Enright's second rationale. 

 Instead of being used against mobsters and 

organized criminals, [RICO] has become a tool 

for everyday fraud cases brought against 

respected and legitimate enterprises. Yet 

Congress wanted to reach both legitimate and 

illegitimate enterprises. The former enjoy 

neither an inherent incapacity for criminal 

activity nor immunity from its consequences. 

The fact that [RICO] is used against 

respected businesses allegedly engaged in a 

pattern of specifically identified criminal 

conduct is hardly a sufficient reason for 

assuming that the provision is being 

misconstrued. . . . The fact that RICO has 

been applied in situations not expressly 

anticipated by Congress does not demonstrate 

ambiguity. It demonstrates breadth. It is 

true that private civil actions under the 

statute are being brought almost solely 

against such defendants, rather than against 

the archetypal, intimidating mobster. Yet 

this defect -- if defect it is -- is inherent 

in the statute as written, and its correction 

must lie with Congress. 

Id. at 499, 105 S.Ct. at 3286 (citation, internal quotation marks 

and footnote omitted). Thus, the Court's holding in Sedima

undermined the second basis of the Enright holding. 

 This court, nonetheless, properly continued after 

Sedima to apply a distinctiveness requirement, since Enright's 

holding was also based on § 1962(c)'s textual directive to allege 

conduct by defendant "persons" operating an "enterprise." Thus, 

Enright's basic holding that "the `person' subject to liability 

cannot be the same entity as the `enterprise,'" Enright, 751 F.2d 
at 633, plainly survived Sedima. See Glessner, 952 F.2d at 710 

("The requirement of distinctiveness stems from the statute 

itself, and has been applied following Sedima."); Brittingham v. 

Mobil Corp., 943 F.2d 297, 300 (3d Cir. 1991) ("[T]he plain 

language of the statute provides that the person must be 

`employed by or associated with' -- and therefore separate from -

- the enterprise . . . ."); Petro-Tech, Inc. v. Western Co., 824 

F.2d 1349, 1359 (3d Cir. 1987) ("We explained in Enright that 

§ 1962(c) was drafted in such a way that Congress must have 

intended the `person' and the `enterprise' to be distinct 

entities under that provision."). 

 This court's post-Sedima jurisprudence, however, could 

be described as following an oblique angle, which, with the 

benefit of hindsight, appears unfortunate. In defining the scope 

of the distinctiveness requirement, our cases focused not on the 

statutory rationale, but on a re-incarnation of the defunct 

infiltrating racketeer rationale of Enright. Since, under the 

infiltrating racketeer rationale, legitimate corporations were 

properly viewed as victims of the racketeering activity, we 

reasoned that defendant persons needed to be associated with 

another separate, illegitimate infiltrating enterprise. In other 

words, we concluded that a successful § 1962(c) claim could not 

allege conduct on the part of corporate officers and directors 

acting through a legitimate corporate enterprise. This 

limitation on actions under § 1962(c) was born of a pre-Sedima

"infiltrating racketeer" reading of RICO's legislative history, 

which, as explained below, was clearly emasculated by the Supreme 
Court in Reves and Scheidler. Clear resolution of the issues 

requires, however, that we briefly sketch our post-Sedima

jurisprudence.3 

 This jurisprudence began to diverge in Petro-Tech, Inc. 

v. Western Co., 824 F.2d at 1359, where, relying on the 

infiltrating racketeer legislative history cited in Enright, we 

held that "§ 1962(c) was intended to govern only those instances 

in which an `innocent' or `passive' corporation is victimized by 

the RICO `persons,' and either drained of its own money or used 

as a passive tool to extract money from third parties." After 

Petro-Tech, we continued to adhere to this limitation on 

§ 1962(c) claims. 

 In Glessner v. Kenny, 952 F.2d at 710-14, we considered 

whether "the individual defendants who were officers and 

employees of the corporation[] can be the `persons' who were 

conducting a pattern of racketeering through the corporation[] as 

an enterprise." Id. at 713. Glessner involved a suit by 

defrauded customers against the defendants, William Kenney, and 

the other officers of Meenan Oil Co. ("Meenan"), who allegedly 

acted through the corporation to fraudulently market and sell 

residential home heating systems. Glessner upheld the district 

 

3. Although Reves and Scheidler did not explicitly address 

§ 1962(c)'s distinctiveness requirement, we nevertheless 

conclude, see infra part D, that these cases by implication 

emasculated our distinctiveness jurisprudence. Given this 

conclusion, we believe it is necessary to first discuss and 

interpret this court's relevant post-Sedima jurisprudence in 

order to effectively demonstrate how the analysis of Reves and 

Scheidler implicitly overruled this court's interpretation of 

§ 1962(c)'s distinctiveness requirement. 
court's dismissal of plaintiffs' § 1962(c) claim for failure to 

plead persons distinct from the corporate enterprise. The 

Glessner panel acknowledged that in certain instances officers 

and employees could constitute persons conducting a pattern of 

racketeering activity through a corporate enterprise (though it 

did not expand upon this statement). Glessner, 952 F.2d at 713. 

Nevertheless, the panel dismissed the action on the authority of 

the Petro-Tech limitation of § 1962(c) claims to "only those 

instances in which an `innocent' or `passive' corporation is 

victimized by the RICO `persons,' and either drained of its own 

money or used as a passive tool to extract money from third 

parties." Glessner, 952 F.2d at 713. 

 In concluding that plaintiffs failed to overcome this 

limitation, the Glessner panel stated: 

 [T]he plaintiffs' injuries for which suit was 

brought arose out of their failure to obtain 

the safe, state-of-the-art [home heating] 

units for which they paid. The individual 

defendants were alleged to have participated 

in the fraudulent advertising as agents of 

the corporation. The RICO case statement 

alleges merely that "all of the defendants 

held positions as officers and principals of 

the corporate defendants, and received income 

as such. All of the defendants derived 

income from each and every sale of the [home 

heating] products. These sales were 

generated by defendants' multiple mail fraud 

violations which combined into a pattern of 

racketeering." This activity is 

indistinguishable from that alleged as to the 

corporations and is a far cry from the use by 

individuals of an innocent passive 

corporation contemplated by Petro-Tech. We 

conclude therefore that this is not the 

situation in which individual defendants, 

whether employees/officers or not, can be 

viewed as distinct from the corporations 
deemed the enterprise. It follows that 

dismissal of the section 1962(c) claim was 

not erroneous. 

Id. at 713-14 (citations and internal quotation marks omitted). 

Thus, the Glessner panel, relying in turn on Petro-Tech's 

infiltrating racketeer limitation to § 1962(c) actions, dismissed 

the plaintiffs' claim that the defendant persons conducted the 

corporate enterprise through a pattern of racketeering activity. 

B.

 Under this court's interpretation of § 1962(c), as 

articulated in Glessner, Jaguar's RICO claims would fail unless 

Royal Oaks was either (1) the victim of the defendant's scheme, 

or (2) a passive tool through which the scheme was conducted. 

Pointing to the Glessner panel's acknowledgement that officers 

and employees of a corporate enterprise could in certain 

instances be properly viewed as distinct defendant "persons" 

under this test, Jaguar initially contends that this is such a 

case and, accordingly, is distinguishable from Glessner. 

 We begin by observing that it seems inconceivable that 

Royal Oaks could be viewed as the victim of the defendants' 

racketeering activity, since Jaguar alleges that Royal Oaks is 

the enterprise through which the defendants conducted their 

racketeering activity. Rather, Jaguar contends that its claim is 

distinguishable from Glessner in that the defendants in this 

action can be viewed as persons using Royal Oaks as a passive 

tool to extract money from third parties. 
 In determining the scope of the "passive tool" 

limitation, we begin by recognizing that in Glessner, the court 

concluded that the plaintiffs had failed to allege that the 

defendant officers were using Meenan as a passive tool to extract 

money from third parties. The Glessner panel reached this 

conclusion despite the fact that the plaintiffs had alleged that 

the defendants had operated the Meenan corporation so as to 

derive income from multiple mail fraud violations. Bound by the 

strictures of Petro-Tech, the Glessner panel reasoned that the 

defendants' activities were "a far cry from the use by 

individuals of an innocent passive corporation contemplated by 

Petro-Tech." Glessner, 952 F.2d at 714. Given this conclusion, 

and recognizing that the activity contemplated by Petro-Tech was 

rooted in Enright's infiltrating racketeer approach, we conclude 

that this court's current interpretation of § 1962(c) improperly 

limits its application to those circumstances where infiltrating 

racketeers have successfully positioned themselves as employees 

and/or officers within an otherwise legitimate corporate 

enterprise. 

 Our interpretation of this court's "passive instrument" 

limitation is buttressed by the recognition that corporations are 

by definition passive instruments, since they are artificially 

created legal persons that can only act through their officers 

and employees. Thus, a test that examines whether a corporation 

is "a passive tool to extract money from third parties" can be 

useful in determining whether officers and employees are 
sufficiently distinct from the corporation only if one adopts the 

infiltrating-racketeer rationale. 

 In sum, we find Jaguar's contention that this case, 

unlike Glessner, satisfies our case law's interpretation of 

§ 1962(c)'s distinctiveness requirement unpersuasive. In this 

action, as in Glessner, the plaintiffs have alleged that the 

defendant "persons" operated, as officers and employees, a 

corporate "enterprise" through a pattern of racketeering 

activity. Similarly, like Glessner, the defendants here are not 

distinct, infiltrating racketeers operating a legitimate 

corporate enterprise as an innocent passive tool; rather, they 

are officers and employees actively managing the affairs of an 

otherwise legitimate corporation through a pattern of 

racketeering activity. 

C. 

 Even though we conclude that this case is 

indistinguishable from Glessner, we nevertheless hold that the 

defendants here are liable under § 1962(c) as persons managing 

the affairs of their corporation as an enterprise through a 

pattern of racketeering activity, since this court's application 

of the distinctiveness requirement to shield corporate officers 

and directors from § 1962(c) liability does not survive Reves, 

113 S.Ct. at 1163 and Scheidler, 114 S.Ct at 798. 

 In Reves, the Supreme Court was faced with the question 

whether § 1962(c) "persons" must participate in the "operation or 

management" of the "enterprise" in order to be subject to 

liability. The case involved a § 1962(c) action against auditors 
working for what was then the accounting firm of Arthur Young, 

which was engaged in an audit of the Farmer's Cooperative of 

Arkansas and Oklahoma ("the Co-op"). Reves, 113 S.Ct. at 1167. 

In certifying the Co-op's annual financial statements on two 

separate occasions, the auditors knowingly failed to reflect a 

Co-op investment at fair market value. Id. at 1167-68. Such a 

valuation would have resulted in the financial statements 

properly reflecting the Co-op's insolvency. Id.

 Given this malfeasance, the Co-op's trustee in 

bankruptcy brought state and federal securities fraud claims 

along with a RICO claim under § 1962(c) on behalf of a certified 

class of noteholders. Id. The trustee alleged that the auditors 

were the "persons" who conducted or participated in a corporate 

"enterprise" (the Co-op) through a pattern of racketeering 

activity consisting of the Co-op's fraudulent sale of securities 

with the aid of knowingly false financial statements. While the 

auditors were found liable to the noteholders for their 

securities fraud claims,4 the Court faced the question whether 

they were also liable under § 1962(c) (that is, whether the 

auditors were persons conducting or participating in the conduct 

of the Co-op's affairs, given that the Co-op was the alleged 

"enterprise" under § 1962(c)). Id. at 1169. 

 

4. The auditors federal security fraud liability had been upheld 

by a previous Supreme Court opinion, addressing the question of 

whether the Co-op's notes were securities within the meaning of 

§ 3(a)(10) of the Securities and Exchange Act of 1934. Reves v. 

Ernst & Young, 494 U.S. 56, 110 S.Ct. 945 (1990). 
 The Court held that liability under § 1962(c) is 

limited to those who "participate in the operation or management 

of the enterprise itself." Id. at 1173. Since the auditors were 

independent and did not operate or manage the Co-op, the Court 

ruled that they were not liable under § 1962(c).5 In so holding, 

the Court undermined the use of § 1962(c) to hold liable 

"`outsiders' who have no official position within the 

enterprise." Id. Reading RICO's legislative history, the Court 

stated that subsections (a) and (b) of § 1962 addressed 

Congressional concern with the infiltration of legitimate 

organization by racketeers, while in contrast "§ 1962(c) is 

limited to persons `employed by or associated with' an 

enterprise, suggesting a more limited reach than subsections (a) 

 

5. Commentators have observed that the plaintiffs in Reves could 

possibly have satisfied the operation and management requirement 

of § 1962(c) had they alleged the existence of another 

enterprise. 

 In Reves the enterprise was the Co-op, but 

this is not the only possibility. Section 

1962(4) defines enterprise as including any 

"legal entity" . . . and "any union or group 

of individuals associated in fact although 

not a legal entity." . . . Thus, RICO's 

enterprise requirement can be satisfied by "a 

group of individuals associated in fact" even 

though not a distinct "legal entity." What 

if plaintiff in Reves had alleged that an 

association in fact consisting of Arthur 

Young, Jack White [the Co-op's General 

Manager], and the Co-op constituted the 

racketeering enterprise, and that Arthur 

Young directed the affairs of this 

"enterprise?" 

See Daniel B. Fischel & Alan O. Sykes, Civil Rico after Reves: An 

Economic Commentary, 1993 SUP. CT. REV. 193-94 (footnote omitted). 
and (b)." Id. (emphasis added); see also id. ("Of course, 

`outsiders' may be liable under § 1962(c) if they are `associated 

with' an enterprise and participate in the conduct of its affairs 

-- that is participate in the operation or management of the 

enterprise itself."). 

 In the wake of Reves, the Supreme Court reiterated its 

interpretation of § 1962(c) in National Organization for Women v. 

Scheidler, 114 S.Ct. at 798, which concluded that an economic 

motive was not required for liability under § 1962(c). In so 

holding, the Court stated: "By contrast [with subsections (a) 

and (b)], the `enterprise' in subsection (c) connotes generally 

the vehicle through which the unlawful pattern of racketeering 

activity is committed, rather than the victim of that activity." 

Id. at 804. In light of Reves and Scheidler, we must, as Jaguar 

has requested, re-evaluate the liability under § 1962(c) of 

officers and employees acting through a corporate enterprise.6 

 

6. We recognize that in Gasoline Sales v. Aero Oil Co., 1994 

U.S. App. LEXIS 30399 (3d Cir. November 1, 1994), this court 

continued to apply Glessner's limitation on § 1962(c) actions 

against officers and directors acting through a corporate 

"enterprise." In Gasoline Sales, plaintiffs alleged, in part, 

that Getty Petroleum Corp. ("Getty") and its wholly-owned 

subsidiaries engaged in a widespread fraudulent scheme to defraud 

retail gasoline stations. One of the plaintiff's claims in 

Gasoline Sales was against Getty's corporate officers, alleging 

that they operated and managed Getty as an enterprise through a 

pattern of racketeering activity. Relying on Glessner, the 

Gasoline Sales panel upheld the dismissal of this claim, 

 

 We have held that corporate employees who 

victimize their employer by draining it of 

its own money or using it as a passive tool 

to extract money from third parties are 

proper section 1962(c) defendants. Glessner, 

952 F.2d at 713. Where the employees merely 
D. 

 Our case law heretofore has focused on the degree of 

distinctiveness between the defendant persons and the enterprise. 

As we have stated, this court has held that in order for 

liability under § 1962(c) to attach, the corporate enterprise 

must be either (1) a victim, or (2) a passive tool used to 

extract money from third parties (as opposed to the enterprise 

through which the fraudulent scheme was perpetrated). But 

the first of these two situations -- a corporate "enterprise" as 

victim of the racketeering activity of the defendant "persons" -- 

is in direct conflict with both Reves and Scheidler. 

 In these cases the Supreme Court held that the 

"enterprise" in subsection (c) is properly viewed as the "vehicle 

through which the unlawful pattern of racketeering activity is 

committed, rather than the victim of that activity." Scheidler, 

114 S.Ct. at 804; Reves, 113 S.Ct. at 1171 ("Congress 

(..continued) 

participate in the corporation's own fraud by 

acting as corporate agents, however, the 

employees may not be sued under section 

1962(c). Id. at 713-14. 

Id. at *7. 

 Notwithstanding this court's internal operating 

procedures, see Internal Operating Procedure 9.1 (binding 

subsequent panels by prior published panel decisions absent in 

banc consideration), we conclude that the Gasoline Sales panel's 

application of the Glessner limitation is also not conclusive 

here because the Supreme Court's opinions in Reves and Scheidler

were not called to the panel's attention, and the opinion did not 

either explicitly or implicitly decide the impact of those cases 

on the issues raised in that appeal. 
consistently referred to subsection (c) as prohibiting the 

operation of an enterprise through a pattern of racketeering 

activity and to subsections (a) and (b) as prohibiting the 

acquisition of an enterprise."). Consequently, a victim 

corporation "drained of its own money" by pilfering officers and 

employees could not reasonably be viewed as the enterprise 

through which employee persons carried out their racketeering 

activity. Rather, in such an instance, the proper enterprise 

would be the association of employees who are victimizing the 

corporation, while the victim corporation would not be the 

enterprise, but instead the § 1962(c) claimant. 

 The second of our case law's two situations -- the use 

of a corporate enterprise by infiltrating racketeers as a passive 

tool or instrument to extract money from third parties -- remains 

a proper, but very limited, application of § 1962(c) under Reves. 

See Fischel & Sykes, supra, at 191 ("Unless the outsid[er] . . . 

is responsible for or in control of management decision making, 

enabling it to `direct the enterprise's affairs,' there can be no 

RICO liability" (quoting Reves, 113 S.Ct. at 1170)). 

 In Reves, the Court acknowledged that in certain rare 

instances infiltrating "persons" distinct from the corporate 

enterprise could satisfy the "operation or management test," if 

they exerted sufficient control over the corporation's 

activities. "`[O]utsiders' may be liable under § 1962(c) if they 

are `associated with' an enterprise and participate in the 

conduct of its affairs -- that is, participate in the operation 

or management of the enterprise itself." Reves, 113 S.Ct. at 
1173 ("An enterprise also might be `operated' or `managed' by 

others [those not in upper management] `associated with' the 

enterprise who exert control over it as, for example, by 

bribery."). 

 While a § 1962(c) claim can exist against persons 

distinct from the corporate enterprise, so long as they exert 

sufficient control over the enterprise, the Court has made clear 

that the provision's reach is not limited to such rare instances. 

In Reves the Court examined, and decided, the question whether 

the defendant auditors "participated in the management of the Coop." Reves, 113 S.Ct. at 1173. While the majority in Reves

found that the auditors had not acted in a management capacity in 

their preparation of the Co-ops's financial statements, the 

dissent argued that the auditors "crossed the line separating 

`outside' auditors from `inside' financial managers."7 Reves, 

113 S.Ct. at 1178 (Souter dissenting). Implicit in the Court's 

analysis then, was the recognition that "inside" managers are the 

"persons" § 1962(c) was designed to reach. Thus, Glessner's 

limitation to "outside" defendants, who either victimize the 

corporate enterprise or operate it as a passive tool, cannot 

survive the Court's holding in Reves that "inside" managers are 

properly liable under § 1962(c). 

 

7. We note that this court applied Reves in a similar context in 

affirming the dismissal of a § 1962(c) RICO claim against 

independent auditors, but without needing to consider its 

implication on our distinctiveness requirement. See University 

of Maryland v. Peat, Marwick, Main & Co., 996 F.2d 1534, 1538-39 

(3d Cir. 1993). 
 Finally, we note that, if we fail to overrule this 

court's interpretation of § 1962(c), its combination with Reves

would hold liable only those persons who are sufficiently 

connected to an enterprise so as to operate or manage it while 

still remaining sufficiently distinct from the enterprise so as 

to victimize or passively control it. Congress could not have 

intended such a razor thin zone of application. See Sedima, 473 

U.S. at 497-98, 105 S.Ct. at 3285 ("RICO is to be read broadly. 

This is the lesson not only of Congress' self-consciously 

expansive language and overall approach but also of its express 

admonition that RICO is to `be liberally construed to effectuate 

its remedial purposes,' Pub. L. 91-452, § 904(a), 84 Stat. 947." 

(citation omitted)). As we have stated, our distinctiveness 

jurisprudence was born of the now defunct, pre-Sedima, 

infiltrating racketeer reading of RICO's legislative history, and 

is now even more clearly at odds with Supreme Court precedent as 

demonstrated by Reves and Scheidler. This court's interpretation 

of § 1962(c)'s distinctiveness requirement must therefore be 

brought in line with binding Supreme Court precedent. 

E.

 We are thus left with the question: what remains of the 

statutorily-based distinctiveness requirement after Reves and 

Scheidler? As we have stated, this requirement originates in the 

statute's textual directive that § 1962(c) liability requires 

conduct by defendant "persons" acting through an "enterprise." 

In this regard, we conclude that the essential holding of Enright

remains undisturbed -- a claim simply against one corporation as 
both "person" and "enterprise" is not sufficient. Instead, a 

viable § 1962(c) action requires a claim against defendant 

"persons" acting through a distinct "enterprise." But, alleging 

conduct by officers or employees who operate or manage a 

corporate enterprise satisfies this requirement. A corporation 

is an entity legally distinct from its officers or employees, 

which satisfies the "enterprise" definition of 18 U.S.C.A. 

§ 1961(4). This section provides that "`enterprise' includes any 

individual, partnership, corporation, association or other legal 

entity." 18 U.S.C.A. § 1961(4) (emphasis added). Accordingly, 

Jaguar has satisfied the distinctiveness requirement of 

§ 1962(c). Jaguar has not brought a claim against Royal Oaks, 

but instead seeks recovery from the defendants, as persons 

operating and managing the Royal Oaks enterprise through a 

pattern of racketeering activity. 

 We recognize that this court has, at times, supported 

its infiltrating-racketeer reading of subsection (c) by resort to 

the notion that "[s]uch an interpretation avoids the absurd 

result that a corporation may always be pled to be the enterprise 

controlled by its employees or officers." Glessner, 952 F.2d at 

713. Informed by the teaching of Reves and Scheidler, however, 

we do not believe that allowing a § 1962(c) action against 

officers conducting a pattern of racketeering activity through a 

corporate enterprise yields an "absurd result." In such an 

action, the plaintiff can only recover against the defendant 

officers and cannot recover against the corporation simply by 

pleading the officers as the persons controlling the corporate 
enterprise, since the corporate enterprise is not liable under 

§ 1962(c) in this context. Instead, a corporation would be 

liable under § 1962(c), only if it engages in racketeering 

activity as a "person" in another distinct "enterprise," since 

only "persons" are liable for violating § 1962(c). Petro-Tech, 

824 F.2d at 1358. 

 This interpretation of the distinctiveness requirement 

of § 1962(c), not only accords with binding Supreme Court 

precedent, as described above, but also is supported by the 

interpretation adopted by all other circuits that have addressed 

the question. In United States v. Robinson, 8 F.3d 398 (7th Cir. 

1993), for example, the Seventh Circuit was faced with a set of 

circumstances similar to those in this case. There, criminal 

RICO charges were brought under § 1962(c) against the officers 

and controlling shareholders of Renoja, a corporation that 

operated as a Wendy's franchise. The defendants engaged in a 

fraudulent scheme to defraud their franchisor, Wendy's 

International ("Wendy's"), by misstating the amount of their 

gross sales in order to avoid paying Wendy's the required royalty 

percentage. The court, focusing on whether the defendant persons 

and the corporation were distinct legal entities, rejected the 

defendants' claim that the government had failed to satisfy the 

distinctiveness requirement of § 1962(c): 

 Robinson was charged with improperly 

conducting Renoja's activities, not his own 

activities. Robinson's claim that he and 

Renoja are inseparable entities is meritless. 

. . . Renoja was an incorporated business 

that employed several hundred people and 
filed separate income tax returns. Robinson 

and Renoja were not the same entity. 

 

Robinson, 8 F.3d at 407. 

 In reaching its conclusion, the Robinson panel relied 

on an earlier opinion by then Judge Posner in McCullough v. 

Suter, 757 F.2d 142, 144 (7th Cir. 1985), which held that an 

unincorporated sole proprietorship was a distinct enterprise from 

its owner because it employed several individuals. In 

McCullough, Judge Posner had recognized that, if the sole 

proprietor had incorporated his business, the corporation could 

then properly be treated as an "enterprise" under § 1962(c) even 

if it employed no one else. Id. at 144 ("If [a] one-man band 

incorporates, it gets some legal protections from the corporate 

form, such as limited liability; and it is just this sort of 

legal shield for illegal activity that RICO tries to pierce."). 

This result followed from the conjunctive definition of 

"enterprise" which includes both "legal entit[ies] and any . . . 

group of individuals associated in fact although not a legal 

entity." 18 U.S.C.A. § 1961(4) (emphasis added). Thus, Judge 

Posner concluded, "[t]he only important thing is that it [the 

enterprise] be either formally (as when there is incorporation) 

or practically (as when there are other people besides the 

proprietor working in the organization) separable from the 

individual." 

 In accord with Robinson is Sever v. Alaska Pulp Corp., 

978 F.2d 1529 (9th Cir. 1992), where the Ninth Circuit considered 

a § 1962(c) claim by a former timber company employee against the 
officers of his former incorporated employer. The plaintiff 

there alleged that the officers, acting through a corporate 

enterprise, blacklisted him for giving unfavorable testimony to a 

Congressional Subcommittee. The district court dismissed the 

action on the grounds that there was "no distinction between the 

officers, agents and employees who operate the corporation and 

the corporation itself." Id. at 1534. Addressing this argument, 

the Ninth Circuit held that a corporation was by legal definition 

an enterprise distinct from its officers or employees: 

 This decision makes it clear that the 

inability of a corporation to operate except 

through its officers is not an impediment to 

section 1962(c) suits. That fact poses a 

problem only when the corporation is the 

named defendant - when it is both the 

"person" and the "enterprise." In this case, 

however, [plaintiff] named the several 

individual officers as defendants/persons, 

and [the corporation] as the enterprise. 

Therefore, he has satisfied this allegation 

requirement. 

Sever, 978 F.2d at 1534. Also in accord are Davis v. Mutual Life 

Ins. Co., 6 F.3d 367, 377-78 (6th Cir 1993), and Bennett v. Berg, 

685 F.2d 1053, 1061 (8th Cir. 1982), aff'd en banc 710 F.2d 1361 

(8th Cir.), cert. denied, 464 U.S. 1008 (1983). 

 In sum, we conclude that when officers and/or employees 

operate and manage a legitimate corporation, and use it to 

conduct, through interstate commerce, a pattern of racketeering 

activity, those defendant persons are properly liable under 

§ 1962(c). 

III. 
 In addition to challenging the legal sufficiency of his 

RICO violation based on the distinctiveness requirement, 

Theodore, Sr. ("Theodore") contends that insufficient evidence 

was presented at trial to support the jury's finding that he was 

liable of the predicate acts of mail fraud.8 The district court 

considered this contention and concluded "that a reasonable jury 

could readily have found liability on the RICO . . . claims," 

because "[t]here was sufficient circumstantial evidence to prove 

Theodore's knowing involvement in the fraudulent management of 

the Royal Oaks service Department." Mem. Op. at 3-4. 

 In reviewing an order denying or granting a judgment as 

a matter of law, we exercise plenary review, applying the same 

standard as the district court. Lightning Lube, 4 F.3d at 1166. 

That standard permits such a motion to be granted "only if, 

viewing the evidence in the light most favorable to the nonmovant and, giving it the advantage of every fair and reasonable 

inference, there is insufficient evidence from which a jury 

reasonably could find liability." Id. In making such a 

determination, "the court may not weigh the evidence, determine 

the credibility of witnesses, or substitute its version of the 

facts for the jury's version." Id. While a "scintilla of 

evidence is not enough to sustain a verdict of liability," the 

 

8. Since Jaguar elected to recover against the defendants based 

on the RICO claims and because we conclude that Theodore was 

properly found liable for the RICO violations, we do not reach 

his contention that the jury's assessment of liability against 

him for negligently overseeing the dealership and for unjust 

enrichment was legally insufficient. 
question is "whether there is evidence upon which the jury could 

properly find a verdict for that party." Id. It is 

uncontroverted that Mark and other dealership employees committed 

numerous acts of mail fraud by systematically mailing false and 

fraudulent warranty claims to Jaguar. At issue on appeal is 

whether the evidence presented to the jury supports the 

conclusion that Theodore aided and abetted these predicate acts. 

 We have held that a defendant may be liable under RICO 

if he aided or abetted the commission of at least two predicate 

acts of mail fraud. See Banks v. Wolk, 918 F.2d 418, 421 (3d 

Cir. 1990); Petro-Tech, 824 F.2d at 1356. Civil RICO liability 

for aiding and abetting advances RICO's goal of permitting 

recovery from anyone who has committed the predicate offenses, 

"regardless of how he committed them." Petro-Tech, 824 F.2d at 

1357. In order to find a defendant liable for aiding and 

abetting a predicate act under RICO, the plaintiff must prove (1) 

that the substantive act has been committed, and (2) that the 

defendant alleged to have aided and abetted the act knew of the 

commission of the act and acted with intent to facilitate it. 

Local 560, 780 F.2d at 284. The first element has concededly 

been met in this case. With regard to the second, a plaintiff 

need not offer direct evidence of intent. Rather, the fact 

finder may infer a defendant's knowledge and intent from 

circumstantial evidence. See Genty v. Resolution Trust Corp., 

937 F.2d 899 (3d Cir. 1991); United States v. Local 560, 780 F.2d 

267, 284 ("[I]t has long been settled that it is permissible to 

infer from circumstantial evidence the existence of intent."). 
 We must therefore consider whether, giving Jaguar the 

advantage of every fair and reasonable inference, there is 

sufficient evidence from which a jury reasonably could find that 

Theodore knew of the fraud and acted with the intent to 

facilitate it. We recognize, as Jaguar concedes, that no single 

piece of evidence links Theodore directly to the fraud. Rather, 

Jaguar contends that while Mark directed the fraudulent scheme, 

Theodore's experience and active participation in the Royal Oaks 

dealership, combined with the extent of the fraud, present a 

sufficient basis from which a reasonable jury could have 

concluded that he was aware of and facilitated the fraudulent 

scheme. We agree. 

 Theodore was the 51% owner and active president of the 

Royal Oaks Jaguar dealership. While Theodore had been a car 

dealer since 1956, his son Mark had relatively little experience 

in operating a dealership. Theodore was actively involved in the 

operation of Royal Oaks. He spent roughly twenty-five to thirty 

hours a week at the dealership and had ultimate supervisory 

responsibility for the dealership's operations. Theodore was 

Mark's supervisor, and met with him daily to discuss the 

operation of the dealership, including its parts and service 

department. In order to have exculpated Theodore, the jury would 

had to have believed that in those meetings they never discussed, 

in any depth, the operation of the service department and the 

source of that department's income; even though, during this 

period, the service department was accounting for between 

$200,000 and $400,000 of the dealership's monthly income, thereby 
allowing Theodore to maintain his annual salary of one-half 

million dollars. 

 In our view, the evidence supports the conclusion that 

Theodore was aware of and concerned about all of the operations 

of the dealership. His salary was five times the amount of any 

other employee, including Mark. Theodore acknowledged in his 

testimony that he reviewed the dealership's financial statements 

on a monthly basis and spent "a lot" of time "inspecting and 

looking around the building." 

 Royal Oaks generated hundreds of thousands of dollars a 

month in warranty claims, while actual work had declined to a 

point where there were few, if any cars in the service 

department. The evidence presented at trial demonstrated that 

the dealership's ten service technicians, in order to occupy 

their time, regularly sat at their workbenches reading magazines, 

or congregated to pitch coins, play ping-pong, play softball, or 

operate electronic cars. Similarly, some technicians themselves 

asked to be laid off because they didn't believe that there was 

enough work to keep them busy. In a dealership which employed a 

total of roughly thirty-five people, a jury could reasonably have 

found it likely that Theodore was aware of a fraudulent scheme so 

pervasive that the evidence suggested it was the subject of 

innumerable jokes among Royal Oaks' employees. 

 The jury could also reasonably have concluded that an 

experienced dealer, such as Theodore, would have grown suspicious 

of the excessive amount of service income attributable to 

warranty work, when examining the dealership's financial 
statements. Because of the pervasive warranty fraud, Royal Oaks 

had an unusually high percentage of service department income 

attributable to warranty work, as opposed to customer-paid 

repairs. Given Theodore's monthly scrutiny of the dealership's 

financial statements, the jury could have concluded he was aware 

of and facilitated the source of this aberrant financial data. 

 In addition, Theodore was aware of Jaguar's 

unprecedented week long monitoring of Royal Oaks' service 

department, and in response called Jaguar regarding it. The jury 

could reasonably have found it inconceivable that Theodore was 

not aware of and did not facilitate the rampant fraud which both 

preceded and followed Jaguar's investigation. 

 In sum, we conclude that the evidence of Theodore's 

control over the dealership (including his spending significant 

time there, reviewing the financial statements, and discussing 

the dealership's operations on a daily basis with his son, the 

architect of the fraudulent scheme), combined with evidence of 

the pervasive nature of the fraudulent scheme, allowed the jury 

to reasonably find Theodore liable of aiding and abetting the 

predicate acts of mail fraud. 

 For the foregoing reasons, the judgment of the district 

court and its order denying the defendants' post-trial motions 

will be affirmed.9

 

9. We have considered and rejected, either on the merits or as 

not relevant, all the remaining arguments raised in the 

defendants' brief. Specifically, we note our rejection of the 

defendants' contention that the district court abused its 

discretion by refusing to delay the trial in order to permit the 

testimony of an expert witness not listed in the pretrial order. 
(..continued) 

The witness was supposed to testify that Royal Oaks' customers 

were satisfied with the service provided by the dealership. This 

testimony is irrelevant to the allegation that Royal Oaks 

submitted false warranty claims to Jaguar, and hence we agree 

with the district court's ruling.