to defraud Allstate. Conspiracy, under Pennsylvania law, is "a combination or agreement between two or more persons to do an unlawful thing or to do a lawful thing in an unlawful manner. A conspiracy to defraud on the part of two or more persons means a common purpose supported by a concerted action to defraud, that each has the intent to do it, and that it is common to each of them, and that each understands that the other has that purpose." Ballantine v. Cummings, 220 Pa. 621, 630, 70 A. 546 (1908) (citation omitted). See also Stern v. Bricklin, 455 F. Supp. 346, 349 (E.D.Pa.1978). The evidence in the record of meetings and of concerted actions of, inter alia, Rittenhouse, Newell, Kass and Pugh, amply demonstrate a knowing plan to defraud Allstate.
In addition to compensatory damages, Allstate also requests an award of punitive damages. Under Pennsylvania law, an award of punitive damages must be supported by evidence of conduct more serious than the mere commission of the underlying tort. Punitive damages are never awarded as a right, no matter how "outrageous" the defendant's conduct. See Smith v. Wade, 461 U.S. 30, 103 S. Ct. 1625, 1638, 75 L. Ed. 2d 632 (1983).
Pennsylvania courts have recognized the standards governing punitive damages set forth in § 908 of the Restatement of Torts (1939). See Chambers v. Montgomery, 411 Pa. 339, 344-445, 192 A.2d 355 (1963). The Pennsylvania Supreme Court in Chambers, quoting the Restatement of Torts § 908, has stated " 'Punitive Damages' are damages, other than compensatory or nominal damages, awarded against a person to punish him for his outrageous conduct." Id. at 344, 192 A.2d 355. It further explained that, "in determining whether punitive damages should be awarded, the act itself together with all the circumstances including the motive of the wrongdoer and the relations between the parties should be considered." Id. at 345, 192 A.2d 355. Therefore, conduct involving bad motive or reckless indifference may justify the special sanction of punitive damages. See Franklin Music Co. v. American Broadcasting Co., Inc., 616 F.2d 528, Inc., 616 F.2d 528, 542 (3d Cir.1980); Delahanty v. First Pennsylvania Bank, 464 A.2d at 1262-63. The purpose of punitive damages is both to punish the wrongdoer for past conduct and to deter both him and others from engaging in similar conduct in the future. See Chuy v. Philadelphia Eagles Football Club, 595 F.2d 1265, 1277 (3d Cir.1979); Delahanty v. First Pennsylvania Bank, 464 A.2d at 1263.
It is clear in this case that within the past ten years Pugh has admittedly defrauded three surety companies: United States Fidelity and Guaranty Company; Maryland Casualty Company; and Allstate Insurance Company. He has devised various schemes and has caused the companies enormous losses. It is clear that the conduct of Pugh falls within the bounds of being deemed "outrageous" -- i.e., "malicious", "wanton", "reckless", "willful", or "oppressive." See Chambers v. Montgomery, 411 Pa. 339 at 344-45, 192 A.2d 355; Delahanty v. First Pennsylvania Bank, 464 A.2d at 1263 (where the court stated "it is difficult to picture a fact pattern which would support a finding of intentional fraud without providing proof of "outrageous conduct" to support an award of punitive damages.") An award of punitive damages is therefore clearly justified.
In Pennsylvania, not only is the decision of whether to award punitive damages within the discretion of the fact finder but also within its discretion is the amount to be awarded. Id. In the case sub judice, while an award of punitive damages will be made, it will be minimal due to the extreme size of the compensatory award. It is the court's belief that to make an additional large award of punitive damages would serve no purpose as it appears that Mr. Pugh is not even in a position to pay such an award.
Plaintiff's final allegation is that pursuant to 18 U.S.C. §§ 1962(c) and 1964(c), the anti-racketeering statute (RICO), it is entitled to an award of "three-fold the damages [it] sustains." The statute provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
18 U.S.C. § 1962(c). Thus, there are several requirements in order to maintain a RICO claim: the activity involved must constitute "racketeering activity" pursuant to 18 U.S.C. § 1961(1); the defendant must be affiliated with an "enterprise" as defined in 18 U.S.C. § 1961(4), engaged in or affecting interstate commerce; and the enterprise must conduct its affairs through a "pattern of racketeering activity" pursuant to 18 U.S.C. § 1961(5). It is clear that this court's finding of fraud, resulting from Pugh's bribery of the Allstate employees, falls within the statute's definition of "racketeering."
It is also evident that the "pattern of racketeering activity" element, requiring at least two acts of racketeering activity within ten years, has been satisfied. See United States v. Salvitti, 451 F. Supp. 195, 199-200 (E.D.Pa.1978). The final requirement, that of an "enterprise," is more difficult to establish. An enterprise is defined as "any individual, partnership, corporation, association or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). There is a conflict existing in the federal courts concerning the proper scope of the "enterprise" element in RICO. The majority of courts, liberally construing the RICO statute, have found an enterprise to exist "where a group of individuals are associated solely because they jointly commit the predicate racketeering offenses under RICO." See, Comment, Reading the "Enterprise" Element Back into RICO Sections 1962 and 1964(c), 76 N.W.Univ.L.Rev. 100, 104 (1981). It is the opinion of other district courts within the circuit that the Third Circuit Court of Appeals would likely adopt such a broad reading of the statute. See United States v. Mazzio, 501 F. Supp. 340, 342 (E.D.Pa.1980) aff'd 681 F.2d 810 (3d Cir.1982); Comment, supra, at 104-06. A minority position, however, would narrowly confine an enterprise to a "pre-existing" economic association -- i.e., "an association having an ascertainable structure which exists for the purpose of maintaining operations directed toward an economic goal that has an existence that can be defined apart from the commission of the predicate acts." See United States v. Anderson, 626 F.2d 1358, 1372 (8th Cir.1980) cert. denied 450 U.S. 912, 101 S. Ct. 1351, 67 L. Ed. 2d 336.
The findings of fact as determined by the court indicate that Pugh's arrangements with Newell, Laffan, Kass, Hessian and Rittenhouse, clearly constitute an "enterprise" within the broad definition of the statute. Additionally, since A.M. Pugh Associates was a pre-existing economic structure from which Pugh operated, the defendants' association would also fall within even the more narrow reading of the statute.
Therefore, the court finds a RICO violation has been made out and the plaintiff entitled to an award of treble damages.
CONCLUSIONS OF LAW
1. The amount of compensatory damages claimed under the indemnity agreement was agreed on by counsel at trial to total $4,034,657.78.
2. The actions of Louis Pugh, Jr. and A.M. Pugh Associates, Inc. constitute a fraud upon Allstate.
3. Defendants Pugh, Pugh Associates and others, engaged in a conspiracy to defraud Allstate.
4. Allstate is entitled to recover punitive damages for Pugh's participation in the fraud against Allstate in the amount of $10,000.00.
5. Pugh's conduct demonstrates a violation of RICO, 18 U.S.C. § 1962(c), entitling Allstate to treble damages in the amount of $12,103,973.34.
6. Judgment is entered against Pugh and Pugh Associates in the amount of $12,113.973.34.