Opinion ID: 597807
Heading Depth: 3
Heading Rank: 1

Heading: The Section 12(2) Violation as a RICO Predicate Act

Text: 42 In addition to his challenges to Metromedia's claim directly under § 12(2), discussed in Part II.B. above, William contends that in order to use a violation of § 12(2) as a predicate for a RICO claim, a plaintiff must prove that the violation was willful. He argues that the district court erred in failing to instruct the jury as to the need to find willfulness in considering the RICO claim. Accepting William's legal premise as valid, see Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 488, 105 S.Ct. 3275, 3281, 87 L.Ed.2d 346 (1985) ( 'a racketeering activity ... must be an act in itself subject to criminal sanction' (emphasis added) (quoting S.Rep. No. 617, 91st Cong., 1st Sess. 158 (1969)); Holmes v. Securities Investor Protection Corp., --- U.S. ----, ----, 112 S.Ct. 1311, 1325, 117 L.Ed.2d 532 (1992) (O'Connor, J., concurring) (RICO unmistakably requires that securities fraud, in order to serve as a predicate act, must have been sufficiently willful to constitute a criminal violation); Trane Co. v. O'Connor Securities, 718 F.2d 26, 29 & n. 4 (2d Cir.1983); § 24 of the 1933 Act, 15 U.S.C. § 77x (1988) (imposing criminal liability under § 12(2) only for violations that are willful), we nonetheless conclude that in light of the procedural posture of the case and the evidence in the record, there is no basis for reversal. 43 Several sets of procedural principles are pertinent. First, Fed.R.Civ.P. 50(b) generally prohibits judgment n.o.v. on any ground not raised in a motion for a directed verdict. See Abeshouse v. Ultragraphics, Inc., 754 F.2d 467, 473 (2d Cir.1985); 5A Moore's Federal Practice 50.08, at 50-83 to 50-86 (2d ed. 1992); 9 Wright & Miller § 2537, at 598. Relief from this requirement is available only to prevent a manifest injustice. Sojak v. Hudson Waterways Corp., 590 F.2d 53, 54-55 (2d Cir.1978) (per curiam). If the evidence was insufficient but no motion for directed verdict was made, the court could grant a new trial if it were satisfied that justice so required. See, e.g., Russo v. State of New York, 672 F.2d 1014, 1021-22 (2d Cir.1982); Sojak v. Hudson Waterways Corp., 590 F.2d at 54-55; Oliveras v. American Export Isbrandtsen Lines, Inc., 431 F.2d 814, 816-17 (2d Cir.1970). 44 Second, the civil procedure rules also provide that [n]o party may assign as error the giving or the failure to give an instruction unless that party objects thereto before the jury retires to consider its verdict, stating distinctly the matter objected to and the grounds of the objection. Fed.R.Civ.P. 51. The purpose of this Rule is to require the parties to give the trial court an adequate opportunity to cure any error in the instructions before the jury deliberates. See, e.g., 9 Wright & Miller § 2551, at 623. Absent objection, an error may be pursued on appeal only if it is plain error that may result in a miscarriage of justice, or in obvious instances of ... misapplied law. City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 256, 101 S.Ct. 2748, 2754, 69 L.Ed.2d 616 (1981); see, e.g., Air et Chaleur, S.A. v. Janeway, 757 F.2d 489, 494 (2d Cir.1985). 45 Further, under Fed.R.Civ.P. 49(a), a party who failed to object, before the jury retired, to the substance of special verdict questions to be put to the jury has no right to object to such matters on appeal. See, e.g., Bohack Corp. v. Iowa Beef Processors, Inc., 715 F.2d 703, 710 n. 8 (2d Cir.1983). A party who only belatedly noticed the failure to submit a needed question to the jury could ask the court to submit that question in a postverdict interrogatory, and the trial judge would have discretion to submit such an interrogatory. See, e.g., Croce v. Kurnit, 737 F.2d 229, 233-34 (2d Cir.1984). 46 Finally, a motion for a new trial on the ground that the verdict was against the weight of the evidence is committed to the sound discretion of the trial judge. See, e.g., Brady v. Chemical Construction Corp., 740 F.2d 195, 200 (2d Cir.1984); Bevevino v. Saydjari, 574 F.2d 676, 684 (2d Cir.1978). Assuming that the district court's denial of such a motion is reviewable, but see Dunlap-McCuller v. Riese Organization, 980 F.2d 153, 157 (2d Cir.1992) (district court order granting or denying a motion for a new trial on the grounds that a verdict is against the weight of the evidence is not reviewable in this Circuit); Kirschner v. Office of the Comptroller, 973 F.2d 88, 96 (2d Cir.1992) (same); Roberts v. Consolidated Rail Corp., 893 F.2d 21, 26 (2d Cir.1989) (same), such a denial will not be reversed unless the denial constituted an abuse of discretion, Brady v. Chemical Construction Corp., 740 F.2d at 201-02; Bevevino v. Saydjari, 574 F.2d at 684. See generally 11 C. Wright & A. Miller, Federal Practice and Procedure § 2819, at 120 (1973) (noting trend away from view that such decisions are not reviewable at all). Where the resolution of the issues depended on assessment of the credibility of the witnesses, it is proper for the court to refrain from setting aside the verdict and granting a new trial. See, e.g., Tennant v. Peoria & P. Union Ry., 321 U.S. 29, 35, 64 S.Ct. 409, 412, 88 L.Ed. 520 (1944) (jury's credibility assessments are entitled to deference); Wade v. Orange County Sheriff's Office, 844 F.2d 951, 955 (2d Cir.1988). 47 On the present appeal, it is not entirely clear whether William's willfulness argument is based solely on the district court's failure to instruct, which would be a basis for a new trial, or whether he also contends that there was no evidence of willfulness, a potential basis for judgment n.o.v. In the district court, the question was raised in the judgment n.o.v. section of defendants' posttrial motion, not in the section in which appellants alternatively requested a new trial. To the extent that appellants seek to assert that there was no evidence of willfulness and that they were entitled to judgment n.o.v., that argument is procedurally barred. Though at the close of the evidence defendants moved for a directed verdict on a number of grounds, this ground was not among them. Thus, judgment n.o.v. would have been improper, and they are not entitled to entry of judgment in their favor on this appeal. 48 To the extent that the willfulness argument challenged the trial court's instructions or suggested that the verdict was against the weight of the evidence as to willfulness, the argument was more properly one for a new trial, and the trial judge so treated it. Though noting that the contention that willfulness is an element for RICO purposes may be correct, the court denied a new trial on the ground that appellants had not raised the question before the jury retired to begin its deliberations. The finding of default is clearly supported by the record. Defendants made no request for an instruction that § 12(2) could not serve as a RICO predicate act unless the violation was willful. Their requests to charge included a lengthy proposed instruction with respect to Metromedia's claim directly under that section; that request, properly, did not mention any need for a finding of willfulness. Though defendants also made a number of requests for instructions with respect to the other alleged RICO predicate acts, they made no mention of § 12(2) as a RICO predicate or of any additional questions to be considered by the jury in that connection. Further, defendants did not object to the trial court's instructions with respect to use of the § 12(2) claim as a RICO predicate; and they did not object to the special verdict form, which expressly instructed the jury that if it found in favor of Metromedia on the § 12(2) claim it was required to find that Metromedia had proven securities fraud as a RICO predicate act. Nor did they request that a postverdict interrogatory be submitted to the jury on the question of willfulness. 49 In this appeal, William argues that the trial court should have excused appellants' failure to raise the issue timely in order to avoid obvious injustice. Given our interpretation of the term willful and given the evidence of record, we are not persuaded that a new trial was needed to avoid injustice. 50 Although we have not directly addressed the meaning of the term willful in § 24 of the 1933 Act as it would apply to a § 12(2) violation, we have stated that the government could prove that a violation of § 17(a) of the 1933 Act, 15 U.S.C. § 77q(a) (1988), was willful within the meaning of § 24 by proving that a defendant deliberately closed his eyes to facts he had a duty to see. United States v. Benjamin, 328 F.2d 854, 862 (2d Cir.), cert. denied, 377 U.S. 953, 84 S.Ct. 1631, 12 L.Ed.2d 497 (1964). In addition, we have more fully explored the meaning of willful in connection with prosecutions under § 32(a) of the 1934 Act, 15 U.S.C. § 78ff (1988), the first clause of which is similar to § 24 of the 1933 Act. Compare § 24 of the 1933 Act, 15 U.S.C. § 77x (imposing criminal liability on any person who willfully violates any of the provisions of this subchapter [1933 Act]) with § 32(a) of the 1934 Act, 15 U.S.C. § 78ff (imposing criminal liability on [a]ny person who willfully violates any provision of this chapter [1934 Act]). In United States v. Peltz, 433 F.2d 48 (2d Cir.1970), cert. denied, 401 U.S. 955, 91 S.Ct. 974, 28 L.Ed.2d 238 (1971), we held that a prosecution under the quoted clause of § 32(a) required a showing that the act [was] wrongful under the securities laws and that the knowingly wrongful act involve[d] a significant risk of effecting the violation that has occurred, id. at 55; see also United States v. Dixon, 536 F.2d 1388, 1397 (2d Cir.1976). Given the similarity of the language of the two statutory provisions, we believe the Peltz test too should be applied in determining whether a violation of § 12(2) was willful. Thus, we conclude that, with respect to oral communications in violation of § 12(2), willfulness may be established by a showing (1) that the defendant either (a) knowingly made false or materially incomplete misleading statements or (b) made false or materially incomplete misleading statements with respect to facts to which he had deliberately closed his eyes but which he had a duty to see, and (2) that he knew that his statements significantly increased the possibility of a sale of the securities in question. 51 We conclude that had the jury been so instructed in the present case, it could easily have found that William's violation of § 12(2) was willful. As discussed in Part II.B. above, William made oral statements falsely assuring Subotnick that all material facts had been disclosed to Metromedia, and he made other oral statements that were materially misleading because of their implicit adoption of, and failure to disclose the falseness of, the financial documents' representations as to Express's condition. As to willfulness, there was a sufficiently great disparity between the Express financial statements given to Metromedia prior to the acquisition (assets of some $11.65 million and liabilities of some $8.77 million) and the postacquisition revelation of its true financial condition (assets of approximately $8.59 million and liabilities exceeding $14 million) to permit the jury to infer that the preacquisition financials were false and that their inaccuracy was not attributable merely to negligence. The jury could also infer that William, given his 100% ownership of, and top executive positions in, International, Travelco, and Express, was aware that Express did not have a net worth of some $3 million, as represented, but instead had a deficit of some $5.5 million. It had been conceded prior to trial that the Fugazy companies were in dire financial straits, and the evidence depicted a William who was desperate for Metromedia to purchase Express. And, if in doubt as to whether the above factors circumstantially bespoke willfulness, the jury could infer from William's own words that his misrepresentations and nondisclosures were intentional and designed to deceive, as in mid-March he wrote that his auditors had played games with ... Express in order to make Express's statement look better. 52 In sum, the question of willfulness was indeed one for the jury, but the evidence was such that, had the jury been instructed that it must answer that question, a finding of willfulness could not have been set aside for lack of evidence. In all the circumstances, it was within the discretion of the trial court to decline to excuse appellants' failure to ask for an instruction on willfulness and to deny their motion for a new trial.