Opinion ID: 611600
Heading Depth: 2
Heading Rank: 2

Heading: participation of piigi in rico enterprise

Text: 30 PIIGI contends that the Plaintiff failed to prove all of the elements of a RICO claim. The defendant was convicted of violating § 1962(c) of RICO which makes it 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 activity or collection of unlawful debt. 18 U.S.C. § 1962(c) (emphasis added). To prove a claim under § 1962(c), the Plaintiff must show that PIIGI (1) participated in the conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Phelps v. Wichita Eagle-Beacon, 886 F.2d 1262, 1273 (10th Cir.1989) (citing Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985)). In particular, PIIGI contends that the Plaintiff failed to prove the first element--that it participated in the enterprise's conduct--and the third element--that there existed a pattern of racketeering activity. We will address PIIGI's participation in this section, 5 and the existence of a pattern in Part III. 31 When a jury verdict is challenged on appeal, our review is limited to determining whether the record--viewed in the light most favorable to the prevailing party--contains substantial evidence to support the jury's decision. Comcoa, Inc. v. NEC Teles., Inc., 931 F.2d 655, 663 (10th Cir.1991). The jury has the exclusive function of appraising credibility, determining the weight to be given to the testimony, drawing inferences from the facts established, resolving conflicts in the evidence, and reaching ultimate conclusions of fact. Kitchens v. Bryan County Nat'l Bank, 825 F.2d 248, 251 (10th Cir.1987). 32 The Supreme Court has recently spoken on what it means to conduct or participate ... in the conduct of the affairs of a RICO enterprise. The Court adopted the Eighth Circuit's operation or management test, which requires that the defendant have participated in the operation or management of the RICO enterprise before liability may be imposed. Reves v. Ernst & Young (Reves II ), --- U.S. ----, ---- - ----, 113 S.Ct. 1163, 1170-73, 122 L.Ed.2d 525 (1993). Thus, to be liable under § 1962(c), one must have some part in directing those affairs of the enterprise, id. at ----, 113 S.Ct. at 1170, although it is not necessary for the participant to have significant control, id. at ---- n. 4, 113 S.Ct. at 1170 n. 4 (rejecting the District of Columbia Circuit's formulation of the operation and management test in Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 913 F.2d 948, 954 (D.C.Cir.1990) (en banc), cert. denied, --- U.S. ----, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991)). [T]he word 'participate' makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase 'directly or indirectly' makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprise's affairs is required. 6 Reves II, --- U.S. at ----, 113 S.Ct. at 1170 (footnote omitted). Applying this standard, the Supreme Court in Reves II held that accountants who failed to inform the audited company's directors that the value of a company asset should be set significantly lower than it appeared on company records did not participate in the conduct of the RICO enterprise--even though using the lower valuation would have given a more accurate picture of the company's poor financial health. Id. at ----, 113 S.Ct. at 1174. 33 The relevant inquiry is thus whether PIIGI participated, directly or indirectly, in the operation or management of the RICO enterprise. The jury was instructed that the Plaintiff alleged that the RICO enterprise in this case consisted of an associati[on] ... in fact of all of the defendants. Tr. 2178. The essence of the enterprise was the fraudulent and deceptive sale of EARs to Standard Federal and others. We find that, applying the Reves II test, the jury was entitled to infer that PIIGI participated in the conduct of such an enterprise. 34 There is abundant evidence of the PIIGI-PAC relationship. For example, the parties stipulated that Alexander Stone was at all relevant times chairman of the board and chief executive operating officer of both PAC and PIIGI. There was evidence that Stone took control of the day-to-day operations of PAC in May 1989. 7 Angell, the comptroller of PAC, reported to Hutchinson, the chief financial officer of PIIGI and PAC. The only PAC employees authorized to sign checks for PAC were either officers of PIIGI or employees of another PIIGI subsidiary, including Alexander Stone; Adrienne Stone, executive vice-president of PIIGI; and Cliff Sabin, secretary-treasurer of PIIGI. The jury could infer that PIIGI, through this close relationship, was participating with PAC in the conduct of the RICO enterprise. 35 Furthermore, between August 1988 and March 1989, PIIGI was a party to, or a guarantor of, Secured Value Pool Purchase Agreements and promissory notes totalling more than $50 million in connection with PAC's sales of EARs to Metropolitan Life Acceptance Corporation under contracts imposing duties on PAC similar to those imposed in its contracts with Standard Federal. PIIGI also guaranteed two, and perhaps three, other PAC contracts for the sale of EARs with three other purchasers as follows: First Commercial Bank on October 27, 1988; First National Bank of Russellville on November 22, 1988, and a purchaser whose name does not appear in the transcript, on September 25, 1987. 36 PIIGI and the IBG defendants also entered into an Automobile Loan Funding Agreement [ALF], under which PIIGI obtained nearly $740,000 in connection with PAC's December 1988 sale of EARs to Standard Federal. Tr. 571, 2328-34; 2335-72; 2382. The ALF agreements were used to help finance PAC's purchase of the automobile loans that would be repackaged as EARs. 8 In connection with the February 1989 sale of EARs to Standard Federal, PAC and the IBG defendants executed an ALF agreement in December 1989, which was guaranteed by PIIGI. The Union Planters defendants required that PIIGI provide guarantees under the ALF program, which was used to finance PAC's purchase of EARs. And while PAC was diverting investor premiums to the payment of expenses rather than promised enhancements for the EARs, PIIGI received from PAC nearly $1 million in payments on a loan. Again, this evidence could support an inference that PIGGI was participating in the conduct of the RICO enterprise of selling EARs via fraudulent misrepresentations in order to keep PAC afloat. 37 Looking at the evidence and inferences in the light most favorable to the Plaintiff, we hold that there was sufficient evidence to support the jury's finding that PIIGI participated in the conduct of the RICO enterprise.