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Hughes v. Consol-Pennsylvania Coal Co.

argued: January 28, 1991.




An Appeal from the United States District Court for the Western District of Pennsylvania; D.C. Civil Action Nos. 83-00921, 83-01674, 83-01675, 83-01676, 83-01677, 83-01678, 83-01679, 83-01754.

Sloviter, Chief Judge; Nygaard, Circuit Judge and Katz, District Judge.*fn*

Author: Nygaard

Opinion OF THE COURT

NYGAARD, Circuit Judge

These consolidated appeals arise from a series of complaints filed by plaintiffs after Monongahela Railway Company acquired their properties and rights-of-way in trust for Consolidated Coal Company, for it to construct and operate a 14.5 mile track from a coal mine to Monongahela's main line. Plaintiffs allege that defendants, Monongahela and Consolidated Coal, among others, fraudulently misrepresented facts to obtain favorable prices. They sought lost profits on theories of civil conspiracy, common law fraud, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq.

I. FACTS AND PROCEDURE

Consolidated Coal Company (Consol) acquired the Nineveh and Manor coal reserves located in Greene County, Pennsylvania. To exploit these reserves, it needed railroad rights-of-way. In December 1980, Consol signed a letter of intent with Rheinische Braunkohlenwerke A.G. (RBW) to form a joint venture to develop these mining reserves. On June 30, 1981, their affiliates, Consol-Pennsylvania Coal Company (Consol-PA) and Rheinbraun U.S. Corporation, signed an "Operating Joint Venture Agreement". On October 29, 1981, Consol and Maria Theresia Bergbaugesellshaft (MTB), a RBW subsidiary, formed Conrhein Coal Company, a partnership. Conrhein subleased the reserves to the joint venture of Consol-PA and Rheinbraun U.S. These affiliates held the reserves as tenants in common.

The coal reserves are located about 14.5 miles from Monongahela Railroad Company's (Monongahela) main line. Consol needed a spur railroad to transport coal from the reserves. On September 30, 1981, Consol and Monongahela signed a "Property Acquisition Agreement". They agreed that Monongahela would use the railroad's eminent domain power to acquire more than fifty parcels of land owned by plaintiffs and other landowners in the "Areas of Interest". Monongahela would hold any land it acquired in trust for Consol. In the same agreement, Monongahela and Consol contracted with Upshur Agency, a real estate broker. Upshur agreed to negotiate with plaintiffs for the needed rights-of-way.

The Rheinbraun corporations were concerned that Consol would be unable to purchase the needed rights-of-way to transport the coal to the various markets. Consequently, addenda were added to their agreements. They provide that Rheinbraun could withhold $12.5 million of its $75 million total investment in the venture for each year that passed before Consol obtained the rights-of-way. If the rights-of-way were not purchased after five years, Rheinbraun could withdraw entirely from the venture.

Time was crucial. The scheme to defraud plaintiffs unfolded as follows. Upshur agents acquired the properties from plaintiffs "in the name of 'Monongahela Railroad Corporation,'" concealing the identity of the true acquirer Consol (which lacked condemnation power). App. at 1160A. Upshur told plaintiffs that if they refused to sell Monongahela would exercise its power of eminent domain and give a fixed price per acre upon condemnation.

Following this scheme, Upshur agents approached plaintiffs and negotiated for the needed rights-of-way. Plaintiffs sold parcels to Monongahela. When some plaintiffs initially refused or hesitated, Upshur agents made thinly-veiled threats to induce them to sell. For example, an Upshur agent threatened to bring condemnation proceedings against James and Linda Hughes. The Hughes sold their 1.5 acre land for $90,000. An Upshur agent threatened to condemn Mark and Charlotte Headlee's property for $700 per acre. The Headlees sold their 26 acre land for $168,000. An Upshur agent threatened John and Linda Yesenosky, whose son was afflicted with acute asthma, that trains could be parked across their driveway. The Yesenoskys sold their 3.6 acre land for $67,000. In some of these instances, either Upshur agents or defendant attorneys told plaintiffs that part of the purchase price would be tax free.

Among the landowners, five -- Grover and Imogene Phillippi, John and Sharon Culp, and Sarah Closser -- either discovered Consol's undisclosed role or were land speculators. Upon the advice of their attorneys, they refused to accept Upshur's original purchase offers. Because these landowners were fully informed and on equal footing with the defendants, Upshur agents were forced to pay substantially higher prices. Specifically, the Phillippis sold 5.2 acres for $600,000 plus the installation of railroad siding. The Culps sold 13.3 acres for $1 million. And Closser sold 1.9 acres for $445,000.

On April 19, 1983, nine plaintiffs filed eight complaints against Consol, Consol-PA, Consol Land Development Company. Monongahela, RBW, MTB, Ewing Pollock, Esq., his law firm, Upshur, and Upshur agents David Boggs, William Reese and Mike Wilson. Plaintiffs alleged violations of RICO, civil conspiracy, and common law fraud. One plaintiff, Dorothy Loughman, also alleged attorney malpractice against Pollock. All eight complaints were consolidated for trial purposes.

Defendants moved for partial summary judgment on plaintiffs' claim that Upshur agents misrepresented Monongahela's power of eminent domain. They contended Monongahela had the power to condemn plaintiffs' properties. On August 6, 1986, the district court granted defendants' motion, but sent the remaining claims of fraudulent misrepresentation, RICO violations, and civil conspiracy to the jury. Finding most of the defendants liable, the jury awarded $5,360,500 in compensatory damages, trebled under RICO. See 18 U.S.C. § 1964(c). It also awarded $5,500,000 in punitive damage because it found defendants acted outrageously.

The district court believed the jury based its compensatory award on the testimony of plaintiffs' land valuation expert, Mr. Gary Bodnar. Bodnar opined that the highest and best use as railroad rights-of-way determines market value of the properties. Because a railroad right-of-way is commercial or industrial property, Bodnar calculated the market value by comparing the properties with purchase prices of other commercial and industrial properties as well as prices eventually obtained by Closser, the Phillippis, and the Culps.

Defendants moved for judgment n.o.v. on all claims. On October 22, 1987, the district court granted defendants' motion for the RICO claims for it concluded plaintiffs failed to satisfy RICO's "continuity" requirement. Supp. App. at 127-28. It also set aside the compensatory damage award because the award was "obscenely excessive." Id. at 123. The court suggested remittitur, but when the parties disagreed on the amount of damages to remit it ordered a new damages trial. Plaintiffs moved for reconsideration of the district court's orders. On May 17, 1988, the court reinstated the RICO verdicts, vacating in part its October 22, 1987 grant of judgment n.o.v. On June 9, 1988, it decided not to submit the issue of punitive damages to a second jury.

On November 20, 1989, before the start of the second trial, defendants moved to vacate the May 17, 1988 order that vacated the judgment n.o.v. of October 22, 1987 and reinstated the RICO claim. On March 1, 1990, the court granted defendants' motion to vacate the May 17, 1988 order, reinstated the October 22, 1987 grant of judgment n.o.v. on the RICO claim, and ordered retrial of the punitive damages issue.

In the second trial on damages, the jury award plaintiffs $4,262,677 in compensatory damages and $674,000 in punitive damages. The defendants moved for judgment n.o.v., new trial, and reargument. The district court denied these motions. Plaintiffs and defendants filed timely appeals, alleging errors at both trial.

We address these issues raised by plaintiffs: (1) whether plaintiffs satisfied the continuity requirement under RICO; (2) whether Upshur agents misrepresented Monongahela's condemnation power; (3) whether the district court abused its discretion by setting aside the first damage award; (4) whether plaintiffs should be entitled to prejudgment interest and delay damages; and (5) whether the district court erred by granting judgment n.o.v. on plaintiff Dorothy Loughman's legal malpractice claim.

We address these issues raised by defendants: (1) whether sufficient evidence existed to support the first jury award of punitive damages; (2) whether the district court erred by instructing the jury that a misrepresentation is actionable regardless of materiality if the misrepresentation was made knowingly; (3) whether plaintiffs justifiably relied on the Upshur agents' statements concerning the tax free nature of the property transactions; and (4) whether certain comments made by the judge in the first trial deprived defendants of a fair trial.

II. RICO CLAIM

The district court granted defendants' motion for judgment n.o.v. on the federal RICO claims because plaintiffs failed to prove the continuity prong of RICO's "pattern of racketeering activity" requirement. Memorandum Opinion of March 1, 1990 at 15 (Smith, J.). See 18 U.S.C. § 1962(c). We will affirm.

When reviewing a judgment n.o.v. we must construe the evidence in a light most favorable to the non-movant and search the record for the minimum quantum of evidence to support the jury verdict. Burke v. Maassen, 904 F.2d 178, 181 (3d Cir. 1990). Here we cannot find the minimum quantum of evidence to support continuity.

We begin our analysis with the statute. RICO, the Racketeer Influenced Corrupt Organization Act, 18 U.S.C. §§ 1961-68 (1984 & Supp. 1990), authorizes civil suits by "any person injured in his business or property by reason of a violation of [18 U.S.C. § 1962]." Id. § 1964(c). To prove that defendants violated section 1962, one must show "a pattern of racketeering activity." This requires commission of "at least two acts of racketeering activity." Id. § 1961(5). These predicate acts include violating federal mail and wire fraud statutes. 18 U.S.C. §§ 1341, 1343. Section 1961's two act requirement does not define a pattern of racketeering activity so much as it sets a minimum condition for such patterns to exist. H.J. Inc. v. Northwestern Tel. Co., 492 U.S. 229, 237, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989). The statute does not define such a pattern.

In H.J. Inc., the Supreme Court held that a pattern of racketeering activity requires the predicate acts be "related, and that they pose a threat of continued criminal activity." 492 U.S. at 239 (emphasis in original). Predicate acts are related when they have "the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." Id., 492 U.S. at 240. Because the district court granted judgment n.o.v. on continuity grounds we will assume relatedness and analyze continuity only.

The H.J. Inc. Court described continuity but fell short of defining it. Continuity is a temporal concept. It is "both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." Id., 492 U.S. at 241. If a plaintiff alleges a RICO violation over a closed period ("closed-ended" scheme), she must prove a series of related predicates lasting a "substantial period of time." Id. at 242. If, however, she alleges a RICO violation before continuity is established ("open-ended" scheme), she must prove a "threat of continuity." Id. A threat of continuity exists when the predicate acts are a part of defendant's "regular way of doing business." Id. That is, defendant operates a "long-term association that exists for criminal purposes." Id.

Though the Court provides the basic structure to analyze continuity, continuity depends ultimately on the "specific facts of each case." Id. The Court openly invites lower courts to define it. Id. at 243 ("development of these concepts must await future cases").

In Marshall-Silver Constr. Co. v. Mendel, plaintiff alleged acts of mail fraud and extortion lasting seven months related to a scheme to force a single business entity bankrupt. 894 F.2d 593 (3d Cir. 1990). We held that the span of seven months showed "neither 'long-term' criminal conduct nor the threat thereof." Id. at 598.

In Banks v. Wolk, plaintiff alleged that two of the defendants, Wolk and Weiner, misrepresented facts to defraud him of his interest in a single piece of real estate. 918 F.2d 418 (3d Cir. 1990). The injury occurred within an eight month period and there was no threat of "future misconduct by Wolk or Weiner." Id. at 423. As to this closed-ended scheme, we held eight months was insufficient to show continuity. See Kehr Packages, Inc. v. Fidelcor, 926 F.2d 1406, 1418 (3d Cir. 1991) ("eight-month period of fraudulent activity directed at a single entity does not constitute a pattern, absent a threat of future criminal acts"); Hindes v. Castle, 937 F.2d 868, 875 (3d Cir. 1991) (eight month period failed to satisfy continuity).

Contrasting Marshall-Silver, Banks, Kehr, and Hindes, we note that in H.J. Inc. the Court found that violations lasting six years were sufficient to show "substantial period of time" in a closed-ended scheme or, alternatively, to show regular way of doing business in an open-ended one. 492 U.S. at 250. In other circuits, only a period of years appears substantial. See Fleet Credit Corp. v. Sion, 893 F.2d 441, 447 (1st Cir. 1990) (over four years); Walk v. Baltimore & Ohio R.R., 890 F.2d 688, 690 (4th Cir. 1989) (ten years); Jacobson v. Cooper, 882 F.2d 717, 720 (2d Cir. ...


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