Aetna Casualty v. Arhaggelidus
Case Date: 12/29/1994
Court: United States Court of Appeals
Docket No: 93-1903
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UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ____________________ Nos. 93-1877 93-1878 93-1879 93-1880 93-1881 93-2209 93-2300 AETNA CASUALTY SURETY COMPANY, Plaintiff - Appellee, v. P&B AUTOBODY, ET AL., Defendants - Appellees. ____________________ ARSENAL AUTO REPAIRS, INC., ET AL., Defendants - Appellants. ____________________ No. 93-1903 AETNA CASUALTY SURETY COMPANY, Plaintiff - Appellee, v. RODCO AUTOBODY, ET AL., Defendants - Appellees. ____________________ BETTY ARHAGGELIDIS, Defendant - Appellant. ____________________ No. 93-2257 AETNA CASUALTY SURETY COMPANY, Plaintiff - Appellee, v. P&B AUTOBODY, ET AL., Defendants - Appellees. ____________________ BETTY ARHAGGELIDIS, Appellant. ____________________ APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. William G. Young, U.S. District Judge] ___________________ ____________________ Before Torruella, Chief Judge, ___________ Boudin, Circuit Judge, _____________ and Keeton,* District Judge. ______________ _____________________ William F. Spallina, with whom Carol A. Molloy was on brief ____________________ _______________ for defendants Arsenal Auto Repairs, Inc., et al. Kenneth R. Berman, with whom David A. Guberman and Sherin __________________ _________________ ______ and Lodgen, were on brief for defendant Jack Markarian. __________ James P. Duggan, Alfred E. Nugent, John G. Lamb, Flynn, ________________ _________________ ______________ ______ Hardy & Cohn, Giovano Ferro II, Ferro, Feeney, Patten & Galante, _____________ ________________ _______________________________ Daniel T. Sheehan, Ralph Stein, Edward G. Ryan, Ahmad Samadi, __________________ ____________ _______________ ____________ Joseph S. Carter, William D. Crowe, Crowe, Crowe & Vernaglia and _________________ ________________ ________________________ Abdullah Swei for defendants P Autobody, et al. _____________ ____________________ * Of the District of Massachusetts, sitting by designation. -2- David S. Douglas and David O. Brink, with whom Howard S. ________________ _______________ __________ Veisz, Kornstein Veisz & Wexler, Glenda H. Ganem and Smith & _____ _________________________ ________________ _______ Brink, were on brief for plaintiff-appellee Aetna Casualty and _____ Surety Company. ____________________ December 29, 1994 ____________________ -3- KEETON, District Judge. This case concerns an alleged ______________ widespread fraudulent scheme, involving five automobile body shops and two insurance claims adjusters. The purpose of the scheme was to obtain payments on fraudulent insurance claims. Seven appellants, defendants in the trial court, challenge on numerous grounds the final judgment entered after a jury trial. The judgment was for Aetna Casualty and Surety Company ("Aetna") against (a) Betty Arhaggelidis on the theory of civil conspiracy in the sum of $373,857.28 plus interest from October 2, 1989 to the date of entry of judgment; (b) the Tirinkians and the Markarians (the five individual "Arsenal defendants") for $3,859,901.72 (consisting of damages of $789,967.24 trebled to $2,359,901.72 under 18 U.S.C. 1962(c) and 1962(d) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and costs, expenses, disbursements and attorneys' fees of $1,500,000.00) together with prejudgment interest from October 2, 1989 to the date of entry of judgment; (c) three of the Arsenal defendants (Zareh Tirinkian, Peter Markarian, and Jack Markarian) for a separate and irreducible penalty of $1,579,934.48 under Mass. Gen. L. ch. 93A in addition to the amount set forth in (b); and (d) Arsenal Auto Repairs, Inc. ("Arsenal Auto"), a separate defendant in the action, for the sum of $789,967.24 on a claim of civil conspiracy plus interest from October 2, 1989 to the date of entry of judgment. -4- For the reasons that follow,2 we affirm. I. BACKGROUND I. BACKGROUND We begin this Opinion with a summary of facts as the jury might have found them; we view the evidence in the light most favorable to the verdicts. See United States v. Rivera- ___ ______________ _______ Santiago, 872 F.2d 1073, 1078-79 (1st Cir.), cert. denied, 492 ________ ____________ U.S. 910, (1989). One of the body shops, Rodco/P&B Autobody, was owned and operated by defendant Petros Arhaggelidis, who has not appealed the judgment against him. He is the husband of appellant Betty Arhaggelidis. She was the owner of two Mercedes upon which six fraudulent claims were made to Aetna. Another of the body shops, Arsenal Auto (also an appellant in this action), was owned and operated by appellant Zareh Tirinkian. His wife, Lena Tirinkian, and her brothers John Markarian and Peter Markarian were employees of Arsenal Auto during the period of the alleged fraudulent scheme. Tarja Markarian and her husband Peter Markarian were the co-owners of a Mercedes upon which two fraudulent claims were made to Aetna. From 1987 to 1989, the Arsenal defendants, together ____________________ 2 The published version of this Opinion includes only the background statement of facts (Part I) and discussion of those issues that may be of general interest (Parts II-IX and Conclusion). The remaining portions of the Opinion (Parts X-XIV) contain a detailed explanation of the sufficiency of the evidence to support the jury findings and address other issues that do not appear to have precedential importance. See First Cir. R. 36.2. ___ -5- with employees and friends, submitted sixteen fraudulent insurance claims to Aetna involving luxury automobiles. Aetna paid $137,346.83 on these claims. The Arsenal defendants filed at least ten additional fraudulent claims with other insurance companies on the same group of cars. The Tirinkians submitted a total of fifteen fraudulent claims (seven to Aetna) upon which either Lena or Tareh Tirinkian was the claimant or the insured. Peter and Tarja Markarian submitted four fraudulent claims (two to Aetna) on their Mercedes. John Markarian, who filed no claims in his own name, was the supervisor of repairs at Arsenal Auto, where most of the cars involved in the fraudulent claims were stored and purportedly repaired. Timothy Cummings and Steven Dexter were two of the many Aetna appraisers who covered the area where Arsenal Auto and the other body shops were located. Either Cummings or Dexter did the appraisal for ten of the sixteen fraudulent claims that the Arsenal defendants (personally or in cooperation with their friends) filed over a three-year period commencing in 1987. Cummings and Dexter submitted false appraisals to help the Arsenal defendants defraud Aetna. In the district court, judgment was entered by default against Cummings and Dexter under RICO for $789,967.24 (being the amount paid out by Aetna on 112 insurance claims submitted to Aetna that the jury found to be fraudulent) trebled to $2,359,901.72 plus interest at 12% per annum from October 2, 1989 on the trebled amount, plus $1,500,000 in costs, disbursements, -6- and attorneys' fees. For each of the sixteen fraudulent claims directly involving the Arsenal defendants and friends cooperating with them, Aetna, in accordance with its business practices, required a completed work form to be submitted by the claimant. At trial, the Arsenal defendants did not provide any documentation that Arsenal Auto or any other autobody shop completed any of the repairs in connection with any of the claims. With respect to some claims, the evidence shows that the claimed accidents never occurred; in other cases, the claimed damage was intentionally inflicted. The jury may have supportably inferred that in some cases defective parts were placed on the cars for the purpose of appraisal and then later replaced with the original parts. The jury found that each of the individual Arsenal defendants was liable for a substantive RICO violation under 1962(c) for participating in the affairs of Aetna through a pattern of racketeering activity. The jury also found all of the individual Arsenal defendants liable, under 1962(d), for RICO conspiracy with the adjusters and the operators of other body shops (not including Betty Arhaggelidis). The judgment against the Arsenal defendants was in the same amount, and on the same calculus, as that against Cummings and Dexter, explained above. Appellant Betty Arhaggelidis was associated with the fraudulent scheme through her husband, the owner of Rodco/P&B Autobody, one of the five autobody shops involved. Betty -7- Arhaggelidis owned two Mercedes, one of which was registered in her mother's name. These two Mercedes were involved in six fraudulent claims, as to all of which Cummings did the appraisal. The jury found that she was liable under a "civil conspiracy" theory centered around Rodco/P&B Autobody, and therefore was liable in connection with thirty-seven fraudulent claims. The appellants challenge the judgments entered against them on a variety of grounds. In addition, each appellant, except for Arsenal Auto Repairs, Inc., appeals the district court's denial of his or her motion for judgment as a matter of law because of insufficiency of the evidence. First we consider the issues arising from the relationships among the RICO counts and the civil conspiracy count, then we consider other issues raised by one or more of the appellants. II. RELATIONSHIPS AMONG COUNTS OF THE AMENDED COMPLAINT II. RELATIONSHIPS AMONG COUNTS OF THE AMENDED COMPLAINT Appellants, at various points, both in oral argument and in briefs before this court, have seemed to suggest that the judgment against them in this case is somehow flawed because of some aspect of the relationships among the different theories alleged and tried before the jury. We address specific aspects of this suggestion in Part III, infra. We address the suggestion _____ more broadly here. The district court considered five different theories (asserted in five different counts) that are relevant to this -8- inquiry: three claims of RICO substantive violations, one claim of RICO conspiracy, and one non-RICO conspiracy claim. First. Count VII, a RICO substantive _____ violation under 1962(c) alleging an association-in-fact enterprise. This theory was dismissed from the case in the trial court. Second. Count VIII, a RICO ______ substantive violation under 1962(c) alleging Aetna as the enterprise. The jury found that this claim was proved against all individual Arsenal appellants. Third. Count VI, a RICO substantive _____ violation under 1962(c), alleging Arsenal Auto as the enterprise. The jury found that this claim was proved against all individual Arsenal appellants. Fourth. Count IX, alleging a RICO _______ conspiracy under 1962(d). The jury found that this claim was proved against all individual Arsenal appellants. Fifth. Count X, common law civil _____ conspiracy. The jury found that this claim was proved against all the appellants, including Arsenal Auto and Arhaggelidis. The judgment against the individual Arsenal appellants jointly and severally in the amount of $2,359,901.72 is supported by the jury's finding of liability on Counts VIII and IX. Therefore, if we determine that either the finding on Count VIII ______ or that on Count IX is supported by sufficient evidence, the judgment must stand. In fact, as we explain below, we find that the evidence was sufficient for the jury reasonably to find liability on both Count VIII (the RICO substantive violation with ____ Aetna as the enterprise) and Count IX (the RICO conspiracy). -9- The Arsenal appellants do not challenge the sufficiency of the evidence in support of the jury's finding of liability on Count VI or on Count X. The only argument raised by appellants with respect to Count VI is an argument regarding pleading deficiency that we have rejected as wholly without support. Moreover, because we have determined that the judgment against the individual Arsenal appellants is supported by jury findings on Count VIII and Count IX, we have no reason to consider whether appellants are independently liable under Count VI, Count X, or both. The judgment against Arsenal Auto Repairs, Inc. which is also an appellant in this action, is supported by the jury's finding of liability on Count X, the civil conspiracy theory. Arsenal Auto has not challenged the sufficiency of the evidence supporting the jury's finding with respect to its liability under Count X. The judgment against Arsenal Auto is affirmed for the reasons stated in other parts of this Opinion. The judgment against appellant Arhaggelidis is supported by the jury's finding of liability on Count X, the civil conspiracy theory. We conclude that the evidence was sufficient to support the jury's finding against Arhaggelidis on Count X. From this summary, it is clear that one of appellants' assertions is true: the relationships among transactions, defendants, and legal claims are complex both legally and factually. A question remains, however, as to how, if at all, -10- any of those complexities or all of them taken together bear upon any of the issues before this court on appeal. Nowhere in the trial record, or in their briefs before this court, except in a passage from their brief that is quoted in Part III, infra, and an argument that the consolidated case _____ was too complex for a jury to understand, App. Brief at 59-61, did the appellants ever clearly formulate an argument or set of arguments based upon their hints and innuendos about complexity. Nevertheless, we have read with special care all parts of the briefs containing such hints or suggestions. We have done so, first, to be certain we have not overlooked any argument presented and, second, to assure that we have taken into account any cited cases that might bear upon the issues presented by a fact pattern as complex as that before us, with interlocking personal, family, and institutional relationships. Entirely apart from the complexities added by RICO, a risk of confusion has long existed because of relationships among different legal and factual theories of conspiracy that might be invoked by the parties or by a court. The law bearing upon the potential consequences of invoking different theories of conspiracy is more extensively developed in criminal cases than in civil. Even with respect to the criminal context, however, relevant statutes and precedents provide only limited guidance for structuring factual and legal analysis. In criminal cases, issues arise often with respect to whether a case should be viewed as one involving: -11- (1) a single conspiracy of many parties, multiple objectives, and broad sweep; (2) multiple independent conspiracies; or (3) a nest of interlocking conspiracies that may involve overlapping conspiracies or smaller, discrete inner conspiracies of fewer persons and smaller scope that are tied in with a larger conspiracy whose members include some but not all of the members of the discrete inner conspiracies. See, e.g., United States v. Glenn, 828 F.2d _________ _____________ _____ 855 (1st Cir. 1987). One result of this range of possible interpretations of the evidence in a particular case is that a question concerning legal theory and arguments based upon it, and concerning instructions explaining the law to the jury, is difficult and "is probably not susceptible to an abstract answer unrelated to context." United States v. Oreto, No. 91-1769, slip ______________ _____ op. at 19 (1st Cir. Oct. 4, 1994). The persons alleged to be RICO conspirators and civil conspirators in the present case, like those charged under a non- RICO conspiracy theory in Oreto _____ have engaged in a series of transactions that could be viewed as a set of separate conspiracies, or one overall conspiracy embracing numerous wrongful transactions, or . . . both an overarching conspiracy and a nest of underlying smaller conspiracies. Partly this is a problem of proof and inference; partly the problem arises from trying to squeeze into the conceptual cubbyhole of "an agreement" activities that in practice often have the more shapeless character of an evolving joint criminal enterprise. -12- Id. at 20 (citations and reference to ___ double jeopardy omitted); see also United States v. Sep lveda, 15 ________ ______________ _________ F.3d 1161, 1191 (1st Cir. 1993), 114 S.Ct. 2714 (1994)("[T]he fact that the organization's methods and tactics evolved over time did not dictate a finding of two, three, or four separate conspiracies."). In a criminal context, the prosecutor is allowed some choice of theory, though the choice may be burdened with consequences, including those incident to the law of double jeopardy. In a civil context, likewise, parties may be allowed some choice of theory. But the choice, in the civil context also, may be burdened with consequences -- a point to which we return below. In this case, added layers of complexity incident to relationships among theories exist, not only because of the relationships between different conspiracy counts -- Count IX (RICO conspiracy) and Count X (civil conspiracy) -- but also because of the relationships among these counts and the counts alleging RICO substantive violations (Counts VII and VIII). Also, as in criminal cases, see, e.g., Oreto, No. 91-1769, slip _________ _____ op. at 19, an answer as to what significance, if any, the legal and factual theories may have, must be context sensitive. Because procedural law allows alternative contentions, parties to a civil action involving such an array of factual and legal theories as this case presents may be allowed to defer choice at least until late stages of proceedings in the trial court. For example, both plaintiffs and defendants in a civil -13- case may be allowed to maintain alternative contentions at least until the evidence is closed, when the court may require some choices to be made about the form of verdict to be used in submitting the case to the jury -- see Fed. R. Civ. P. 49 -- and ___ about instructions to the jury. When a party does not request either a "special question" or an instruction submitting a particular theory of conspiracy to the jury, that party makes a choice that has the associated consequence of almost certainly precluding the assertion after verdict of the omitted theory of conspiracy. See, e.g., Fed. R. Civ. P. 49. The law (a __________ procedural rule, in this instance) allows choice, but it may limit the scope of choice by defining consequences that are attached to each of the available options, rather than allowing complete freedom of choice. A party making a choice of this kind, among legally defined options only, is making an "election" in the classic sense. See John S. Ewart, Waiver or Election, 29 ___ ___________________ Harv. L. Rev. 724 (1916). Of course, a trial court may in some circumstances allow submission to a jury of two or more theories, with appropriate instructions explaining as to each theory the factual elements the jury must find to return a verdict sustaining that theory. The different theories submitted to a jury may be factually compatible -- that is, a verdict sustaining all theories submitted may be permissible. Also, however, the evidence and the different theories of conspiracy submitted to a jury in a particular case may be so factually incompatible that -14- the jury's choice is limited to finding one or another of the theories supported, but not all. In the present case, the trial judge, in submitting the case to the jury, used a verdict form that at first glance might appear to be a submission on "special questions," with no "general verdict," under Fed. R. Civ. P. 49(a). Closer examination, however, of both the verdict form and the record of colloquies about it, discloses that the court required only a general verdict of the jury, under Fed. R. Civ. P. 49(b), as to each claim against each defendant, after elimination of claims that were alleged but as to which either the court rejected the claim as a matter of law (the association-in-fact conspiracy theory alleged in Count VII) or Aetna elected not to request submission to the jury. The submission of a separate question requiring the jury to report an answer as to each of at least 122 of the 176 allegedly fraudulent claims was necessary because disputed factual issues were presented not only with respect to whether an alleged RICO conspiracy and the alleged RICO substantive violations existed, and, if so, what defendants were liable under each theory, but also with respect to whether each of the transactions was within the scope of the conspiracy or substantive violation. The answers have a bearing on the terms of the judgment to be entered, even though the trial judge determined (supportably, we have concluded) that no genuine dispute of fact existed as to the amount paid by Aetna on each of -15- the 112 claims the jury found to be fraudulent. In summary, we conclude that the verdicts and judgment for plaintiff against the appellants are supported by the evidence received in this case, and by law. -16- III. SUFFICIENCY OF PROOF III. SUFFICIENCY OF PROOF A. Standard of Review __ __________________ Appellants challenge the sufficiency of the evidence to support the judgment entered against them. They argue that the district court should have granted their motions for judgment as a matter of law. The district court may grant a motion for judgment as a matter of law only if, after examining the evidence and all reasonable inferences therefrom "in the light most favorable to the nonmovant," it determines that "the evidence could lead a reasonable person to only one conclusion," favorable to the movant. Gallagher v. Wilton Enterprises, Inc., 962 _________ _________________________ F.2d 120, 124 (1st Cir. 1992)(quoting Hendricks & Associates, Inc. v. Daewoo Corp., ____________________________ ____________ 923 F.2d 209, 215 (1st Cir. 1991)). A denial of judgment as a matter of law is "reviewed de novo, __ ____ which means that we use the same stringent decisional standards that control the district court." Id. at 125. ___ With respect to the five individual Arsenal defendants, appellee argues that the judgment in the amount of $2,369,901.72 is supported, independently, by each of two jury findings -- first, the finding that all individual Arsenal defendants are liable on a theory of RICO substantive violation with Aetna as the enterprise under 1962(c) (Count VIII) and, second, the finding that all individual Arsenal defendants are liable on a theory of RICO conspiracy under 1962(d) (Count IX). With respect to defendant Betty Arhaggelidis, the appellee argues that -17- the judgment in the amount of $373,857.28 is supported by the jury finding that she was liable on a theory of civil conspiracy. We examine the evidence supporting each of these theories against each defendant in Parts III.C, III.D, and III.E, infra. _____ B. Appellants' Preclusion Argument Based on the __ __________________________________________________ Relationship of Count VII to Other Counts _________________________________________ The appellants challenge the district court's denial of their motion for judgment as a matter of law on Count VIII, the RICO substantive charge alleging Aetna as the enterprise, and Count IX, the RICO conspiracy charge. They contend that once the district court granted defendants' motion for judgment as a matter of law on Count VII (the RICO substantive violation alleging an association-in-fact enterprise including all defendants), the district court should have granted, also, defendants' motion for judgment as a matter of law on Counts VIII and IX. (This argument was not made in the trial court as to defendants' motion for judgment as a matter of law on Count VI, nor is it asserted on appeal. Count VI, alleging Arsenal Auto as the enterprise, alleges a scheme of a smaller scope than that alleged in Count VII. Thus, no plausible argument can be made that the court's dismissal of Count VII requires the dismissal of Count VI.) Appellants do not clearly state the legal premises of their preclusion argument. Reading generously to appellants, however, to assure that we address any contention that might even -18- plausibly be presented, we infer that some asserted principle of preclusion is at least implicitly if not explicitly suggested. For example, appellants say: The trial judge's ruling directing a verdict for all Defendants on Count VII of the Complaint, because there was "insufficient evidence to sustain Count 7, an overall association-in-fact enterprise," (App. 4092), separated the Arsenal Defendants from the other Defendants in the case and thereby disassociated [sic] the actions of the Allston Group from the acts of the Arsenal Defendants. Without the association-in-fact enterprise to meld the acts of the various Defendants into an overall conspiracy, the link between the Arsenal Defendants and the Allston Group was severed thereby absolving the Arsenal Defendants from any wrongdoing concerning bribery. As such, the trial judge's ruling, by implication, absolved the Arsenal Defendants from bearing the burden of the Allston Group's bribery. Appellants' Brief at 41-42. It is true that each of Counts VII, VIII, and IX alleges a fraudulent scheme that includes all the body shops. These three theories have the same "scope" in the sense that each of them would support the judgment against the Arsenal individual defendants in the amount of $2,369,901.72. Nevertheless, each count asserts a distinctive theory, and none of the three theories has all of the elements of any other of the three. Counts VII and VIII allege RICO substantive violations under 1962(c), but the entities alleged as the enterprise are different. In contrast to these substantive violations, Count IX ___________ alleges a RICO conspiracy under 1962(d). __________ -19- Since each of the three counts requires different elements of proof, the appellants are incorrect when they say that the dismissal of one of these counts, namely Count VII, requires the dismissal of one or both of the other two counts. ________ Although the appellants' argument fails as a matter of law, we proceed to consider the possibility of some other implicit premise that may have led to such a patently incorrect statement of law. One premise that may be inferred from appellants' argument is that in order to prove Count VIII, the RICO substantive violation with Aetna as the enterprise, the plaintiff had to prove the same relationships between the defendants that were essential to the association-in-fact enterprise alleged in Count VII. This assumption is incorrect. Section 1961 defines an "enterprise" for the purposes of RICO to include "any individual, partnership, corporation . . . 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). Thus to satisfy the "enterprise" element of a RICO substantive violation, a plaintiff may prove either the existence of a legal entity, such as a corporation, or that a group of __ individuals were associated-in-fact. Since Aetna is a corporation, Aetna can constitute an "enterprise" for the purpose of Count VIII, even if there is no proof of an association-in- fact enterprise. In contrast, Count VII requires proof of an -20- association-in-fact enterprise. An association-in-fact enterprise is an "ongoing organization," with members "function[ing] as a continuing unit," which is "separate and apart from the pattern of racketeering in which it engages." United States v. Turkette, 452 U.S. 576, 583 (1981). _____________ ________ Since no party has challenged the district court's grant of the defendants' motion for judgment as a matter of law on Count VII, we need not determine the precise elements required for a plaintiff to prove an association-in-fact enterprise. Nevertheless, it is clear that an association-in-fact enterprise is different from an enterprise that is a legal entity, like Aetna. Since different proof is required to establish these different kinds of an enterprise, the court's determination as a matter of law in favor of the defendants on Count VII is consistent with the court's determination that fact issues remained for the jury to decide with respect to Count VIII. Another possible premise, which is not explicitly articulated or acknowledged by the appellants, is that in order to prove a RICO conspiracy of the scope alleged in Count IX, the plaintiff was required to prove the existence of an association- in-fact enterprise of that same scope. This premise is not valid. Section 1962(d) does not require proof of an association-in-fact enterprise. Any enterprise meeting the definition of enterprise in 1961 will do. Under 1961 an enterprise may include a legitimate legal entity like Aetna as the victim of the racketeering activity. This -21- court has previously upheld convictions under both 1962(c) and 1962(d), that alleged a victim enterprise like Aetna. See United States v. Boylan, 898 F.2d 230 ___ _____________ ______ (1st Cir.), cert. denied, 498 U.S. 849 (1990) ____________ (victim enterprise was the Boston Police Department). Therefore, in order to satisfy the enterprise element of a RICO conspiracy of the scope alleged in Count IX, the plaintiff needed only to prove some kind of enterprise of that scope, not necessarily an association-in-fact enterprise. In the case at hand, proving a RICO conspiracy with Aetna as the enterprise was sufficient. For these reasons, the trial judge's ruling as a matter of law for defendants on Count VII, based on the conclusion that there was not enough evidence to go to the jury on the theory of an "association-in-fact" enterprise, is entirely consistent with the jury findings of a 1962(c) substantive violation (with Aetna as the victim enterprise) and of a 1962(d) conspiracy (with Aetna as the victim enterprise). C. Substantive RICO Violation Under 1962(c) with __ __________________________________________________ Aetna as the Enterprise -- Count VIII _____________________________________ For an individual defendant to be liable for a RICO substantive violation under 1962(c), with Aetna as the enterprise, the evidence must be sufficient for the jury to find that (1) Aetna was an enterprise affecting interstate or foreign commerce, (2) that the defendant under consideration associated with the enterprise, (3) that this defendant participated in the -22- conduct of the enterprise's affairs, and (4) that this defendant's participation was through a pattern of racketeering activity. 28 U.S.C. 1962(c). We consider, whether the evidence was sufficient to prove each of these elements against each of the defendants the jury found liable under Count VIII. First Element. Aetna is an "enterprise affecting _______________ interstate commerce" within the meaning of 1962(c). The major purpose of RICO is to protect legitimate business enterprises from infiltration by racketeers. "Enterprise" as used in this act, includes legitimate corporations. See United States v. ___ _____________ Turkette, 452 U.S. 576, 101 S.Ct. 2524 (1981). Since Aetna is a ________ major property and casualty insurer doing business in many states, Aetna's conduct of its business "affects interstate commerce." See United States v. South-Eastern ___ ________________ _____________ Underwriters Ass'n, 322 U.S. 533 (1944) (a ___________________ fire insurance company that conducts a substantial part of its business transactions across state lines is engaged in "commerce among the several states" and is subject to regulation under the Commerce Clause). Appellants argue that Aetna cannot constitute the "enterprise" because the alleged racketeering activities were to the detriment and not the benefit of Aetna. This argument rests on a misinterpretation of the RICO statute. The statute does not require that the pattern of racketeering be in furtherance of the enterprise. In United States v. Boylan, this court upheld the _____________ ______ convictions of Boston police detectives who violated RICO by -23- illegally participating in the affairs of the Boston Police Department (the enterprise), through a pattern of racketeering by accepting bribes. Boylan, 898 F.2d 230. In Boylan, as in this ______ ______ case, the affairs of the enterprise were undermined by the illegal activity. See also Yellow Bus Lines, Inc. v. Drivers ___ ____ ______________________ _______ Chauffeurs & Helpers Local Union 639, 913 _______________________________________ F.2d 948, 952 (D.C. Cir. 1990), cert. denied, ____________ 501 U.S. 1222 (1991)("Section 1962(c) nowhere requires proof regarding the advancement of the enterprise's affairs by the defendant's activities or proof that the enterprise itself is corrupt . . . ."); United States v. Provenzano, 688 F.2d 194 _____________ __________ (3rd Cir.), cert. denied, 459 U.S. 1071 _____________ (1982)(RICO is not limited to racketeering activities that advance or benefit the enterprise, but also encompasses racketeering activities that work to the detriment of the enterprise). Second Element. Appellants, who are not employees of _______________ Aetna, attempt to distinguish Boylan by pointing out that in ______ Boylan the defendants were employees of the organization that ______ constituted the RICO enterprise. Appellants argue that the statute prohibits employees from conducting an enterprise's affairs through a pattern of racketeering activity to the detriment of the enterprise, but does not prohibit persons who are merely associated with the enterprise from conducting the enterprise's affairs to its detriment through a pattern of racketeering activity. The proposed distinction is not supported by the language of the statute, which refers to "person[s] employed by or associated with any enterprise." 18 U.S.C. 1962(c)(emphasis __________ ____ -24- added). Nor is it supported by any identifiable public policy or by precedent. See, e.g., United States v. Yonan, 800 F.2d _________ _____________ _____ 164 (7th Cir. 1986) cert. denied, 479 U.S. ____________ 1055 (1987)(upholding conviction of attorney, who was not an employee of the enterprise, a prosecutor's office, for violating RICO by conducting the affairs of the prosecutor's office through bribery); United States v. Bright, 630 F.2d 804, 830- _____________ ______ 31 (5th Cir. 1980) (upholding RICO conviction of a bail bondsmen, who was not an employee of the enterprise, a sheriff's office, for unlawfully participating in the affairs of the enterprise through bribery). Appellants also argue that the defendants cannot be held liable for a RICO substantive violation with Aetna as the enterprise because they were not even "associates" of the enterprise, but were outsiders and, as outsiders, could not be said to "have participated in the conduct" of Aetna's affairs. This is an argument more of words than substance. The statute uses the phrase "associated with" rather than creating a category of "associates," narrowly defined to include fewer persons than those who may be said to have "associated with" an enterprise in a broader sense of this phrase. In ordinary usage, one who, for example, buys an insurance policy from an enterprise and depends on the solidarity of that enterprise, for protection against defined risks, has an association with, and may be said to have "associated with," the enterprise. Each of the individual appellants was either an insured or a claimant under an Aetna policy, or an owner or operator of a body shop involved in repairing automobiles insured by Aetna. -25- Three of the five individual Arsenal appellants (the Tirinkians and Peter Markarian) were both insureds and operators. As an insured, a claimant, or a body shop operator, each of the appellants was in a contractual relationship with Aetna. The body shop (also an appellant) and its owners and operators were "associated with" Aetna because each body shop about which evidence was received at trial was a place where Aetna employees conducted appraisals and where cars that were the subject of insurance were purportedly repaired. Third Element. Appellants argue that no reasonable ______________ jury could have found that the appellants "participated directly or indirectly in the conduct of the enterprise's affairs" because the defendants did not "participate in the operation or management of the enterprise itself." Reves v. Ernst & Young, _____ _____________ 113 S.Ct. 1163 (1993). Contrary to the appellants' assertion, there was sufficient evidence for a reasonable jury to find that the defendants' activities met the definition of "participation" adopted by the Supreme Court in Reves, which is known as the _____ "operation or management" test. Id. at 1172. Appraising ___ allegedly damaged vehicles and investigating, processing, and paying automobile insurance claims are vital parts of Aetna's business. By acting with purpose to cause Aetna to make payments on false claims, appellants were participating in the "operation" of Aetna. The Supreme Court in Reves interpreted the phrase _____ -26- "conduct of the enterprise's affairs" to indicate a "degree of direction," which the court described as taking "some part in directing the enterprise's affairs." Id. at 1170. The evidence ___ was sufficient to support a finding that the individual Arsenal defendants' activities affected, in a material degree, the direction of Aetna's affairs by employees of Aetna. Appellants' activities caused Aetna employees having authority to do so to direct that other employees make payments Aetna otherwise would not have made. The Court in Reves emphasized that, as in this _____ case, the defendants' "participation" could be "indirect" in the sense that persons with no formal position in the enterprise can be held liable under 1962(c) for "participating in the conduct of the enterprise's affairs." Id. The evidence was sufficient ___ to support a finding that each of the appellants participated in the conduct of Aetna's affairs in this way. Moreover, in Reves the court expressly recognized that _____ "an enterprise also might be operated or managed by others 'associated with' the enterprise who exert control over it as, for example, by bribery." Id. at 1173. When viewed in the light ___ most favorable to the plaintiff, in support of the verdict in this case, the evidence supports a finding that appellants caused the Aetna appraisers to approve false claims and conduct their appraisals in a manner contrary to Aetna's business practices and caused Aetna to pay out large sums of money on false claims. The evidence was sufficient to support a finding that appellants exerted control over the enterprise, if not by bribery (the -27- example given by the Court in Reves), then at least by other _____ methods of inducement. Since a reasonable jury could find that the appellants exerted some control over Aetna and took part in directing some aspect of the enterprise's affairs, the appellants' actions could be found to have satisfied the "operation or management" test. Fourth Element. The final element necessary to support _______________ liability under 1962(c) is that each defendant's participation was "through a pattern of racketeering activity." In order to establish a pattern of racketeering activity, the evidence must show that each defendant committed two acts of racketeering activity within the span of ten years. The predicate acts are defined by 18 U.S.C. 1961 to include mail fraud, wire fraud, and bribery as well as aiding and abetting these offenses. See Oreto, No. 91-1769, slip op. at 27 ___ _____ (jury could find a pattern of racketeering activity for the purposes of 1962(c) if the appellants aided and abetted the commission of at least two predicate acts); see also Pereira v. United States, 347 U.S. ___ ____ _______ _____________ 1, 9 (1954)(a person who aids and abets another in the commission of mail fraud, a violation of 1341, also violates 1341); 18 U.S.C. 1961 (violations of 1341 constitute predicate racketeering activity). Although these terms refer to criminal offenses to which the beyond-reasonable-doubt burden of proof applies, a plaintiff in a civil RICO action may prove these acts by a preponderance of the evidence. See Combustion Engineering, Inc. v. Miller ___ ____________________________ ______ Hydro Group, 13 F.3d 437, 466 (1st Cir. ____________ 1993)(the preponderance of the evidence standard applies to fraud claims in civil -28- RICO proceedings); see also Moss v. Morgan Stanley, Inc., 553 ___ ____ ____ ____________________ F. Supp. 1347 (S.D.N.Y.), aff'd 719 F.2d 5 _____ (2nd Cir. 1983), cert. denied sub nom. Moss ____________ _________ ____ v. Newman, 465 U.S. 1025 (1984) (although ______ proof in civil proceedings under RICO requires only a preponderance of the evidence, which is a lower standard of proof than in criminal proceedings, the standard does not relate to the elements of the predicate crimes, but to the burden that the plaintiff bears in showing the elements). The elements of a mail fraud violation are a scheme to defraud and the use of the mails to execute or further this scheme. United States v. Brien, 617 F.2d 299, 311 _____________ _____ (1st Cir.), cert. denied, 446 U.S. 919 _____________ (1980). The plaintiff alleged that each defendant committed predicate acts of mail fraud. The intentional filing of false insurance claims or false completed work forms in order to obtain payments from Aetna constitutes a "scheme to defraud" Aetna. The plaintiff does not need to prove that each defendant personally used the mails but only that the defendant acted "with knowledge that the use of the mails will follow in the ordinary course of business, or [acted in circumstances] where such use can be reasonably foreseen." United States v. Maze, 414 U.S. 395, 399 (1974). In this case, ______________ ____ it could reasonably be foreseen by each defendant that either an insured, a claimant, a body shop or an appraiser would use the mails in connection with each of the fraudulent claims, or that Aetna would use the mails to send payments to the recipients. All of these uses of the mails were in furtherance of the defendants' fraudulent scheme. -29- See United States v. Martin, 694 F.2d 885, ___ _____________ ______ 890 (1st Cir. 1982) (refund checks mailed by |