United States District Court, E.D. Pennsylvania
T. LEVY ASSOCIATES, INC.
KAPLAN, et al.
retail business should expect its senior manager to act with
fidelity to the business. While the manager's duty is no
greater as a matter of law because he married the daughter of
the founder/majority shareholder of the business, we must
realistically appreciate a founder of a business turning
day-to-day management over to his son-in-law expects his
family will protect his business. He may also expect this
fidelity even if his daughter (wife of the manager) follows
in his footsteps and operates a similar retail business.
Today, we address the difficult situation arising when the
father's business is allegedly harmed by a pattern of
actions designed to enrich the daughter and son-in-law with
significant losses to their father's business. While the
father's retail business withdrew claims under the Lanham
Act and Computer Fraud and Abuse Act, it did adduce
substantial evidence requiring our jury's credibility
findings on its claims of conversion, fraud, breach of
fiduciary duty, misappropriation of trade secrets, tortious
interference with contract and a violation of the Racketeer
Influenced and Corrupt Organizations Act. In the accompanying
Order, we grant in part (upon consent) and deny in part the
daughter's and son-in-law's motion for summary
Levy is the majority shareholder and president of T. Levy
Associates, Inc., a business owning a retail store founded by
him to sell beauty products. ("Company"). Mr.
Levy's son-in-law Michael Kaplan worked at the Company
for decades, and by 2008, Mr. Levy appointed Mr. Kaplan as
the Company's Vice President. As Vice President, Mr.
Kaplan ran the Company's entire business and had
"carte blanche" to perform his
duties. Mr. Levy retired but maintained periodic
contact with the Company's sales
operations. By 2013, Mr. Kaplan ceased his periodic
contact with the Company.
Levy's daughter Nina Kaplan-married to Mr. Kaplan-also
operates businesses in the beauty industry, including a
business called BLC Beauty, Inc. In 2012, the Company closed
a retail store in Newtown, Pennsylvania, and BLC Beauty took
over the same space.
purposes of their motion for summary judgment, Mr. Kaplan,
Mrs. Kaplan, and BLC Beauty do not dispute one or more of
• Fraudulently charged personal and BLC Beauty business
purchases to the Company's American Express account;
• Used the Company's funds to purchase inventory
for BLC Beauty;
• Accessed without authorization and damaged the
Company's computer and destroyed confidential business
data owned by the company;
• Diverted wholesale business from the Company to BLC
• Stole the Company's computer data and business
records to divert wholesale sales to BLC Beauty; and,
• Embezzled Company funds to pay rent for BLC
early 2016, Mr. Levy learned the Company had less money in
the bank, less inventory in its warehouse, and significantly
higher accounts payable than Mr. Kaplan led him to
believe.On March 16, 2016, shortly after
discovering those issues, Mr. Levy terminated Mr.
Kaplan's employment. Mr. Levy hired a forensic accountant
to audit the Company, and the accountant concluded Mr. Kaplan
caused $492, 922.99 in losses to the Company. The
Company's expert reported Mr. Kaplan diverted eight
wholesale customers, which accounted for approximately 75% of
the Company's wholesale sales. After losing this
business, Mr. Levy decided to forgo the Company's
point after Mr. Levy fired Mr. Kaplan, Mr. Kaplan went into
the store with his daughter and his daughter's boyfriend,
Deyvid Demelo. Company employees told Mr. Levy they
could not use the computer after the group left the
Company then sued Mr. Kaplan, Mrs. Kaplan, Mr. Demelo, and
BLC Beauty for a variety of federal and state claims,
including violations of the Racketeer Influenced and Corrupt
Organizations Act,  the Lanham Act,  the Computer
Fraud and Abuse Act,  and state law claims of conversion,
fraud and breach of fiduciary duty, misappropriation of trade
secrets,  and tortious interference with existing
and prospective contractual relationships.
move for summary judgment, arguing the Company's claims
under the Lanham Act, the Computer Abuse and Fraud Act, RICO,
and his claim for intentional interference with contractual
relations fail as a matter of law. Defendants also argue the
conversion claims are barred by the statute of limitations
and some of its claims are barred by the statute of frauds.
The Company agrees it lacks evidence for violations of the
Lanham Act and the Computer Abuse and Fraud Act, and we grant
Defendants' motion on these claims. We deny
Defendants' motion in all other respects.
deny summary judgment as to the RICO claims.
argue the Company does not satisfy the continuity element of
the "pattern of racketeering activity" requirement
under RICO. Defendants also argue there is no
evidence Mr. Kaplan engaged in "wrongful or
unauthorized" conduct, because Mr. Kaplan had
"carte blanche" authority to run the
Company satisfies the continuity element.
Company satisfies the continuity element of RICO's
"pattern of racketeering activity" requirement. For
the purposes of this motion, Defendants do not dispute they
engaged in predicate acts. As they do not dispute these
predicate acts, they also do not dispute the predicate acts
occurred between 2010 through March 16, 2016-the date Mr.
Levy terminated Mr. Kaplan. Defendants' sole argument is
Mr. Kaplan's March 16, 2016 termination ended the
"necessary future threat which must be proven to
establish a RICO claim."
threat of continuity, however, need only be established when
the pattern of racketeering activity is open
ended. "'Continuity' 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." "A party alleging a RICO violation
may demonstrate continuity over a closed period by proving a
series of related predicates extending over a substantial
period of time." In open-ended cases where continuity
cannot be established, "liability depends on whether the
threat of continuity is
Court of Appeals found substantial continuity in a
closed-ended pattern of racketeering where the scheme lasted
over three years. The predicate acts in this case occurred
over the course of six years. Because the conduct in this
case occurred over a substantial period of time, the Company
need not prove a threat of continuity.
reject Defendants' argument the Company authorized Mr.
Kaplan to misappropriate funds.
acknowledge "there is a substantial dispute as to the
purposes and nature of each disbursement" Mr. Kaplan
made while running the Company. Defendants also agree
"whether there was a misappropriation, fraud or theft is
subject to material dispute."
Defendants argue because Mr. Kaplan "had full authority
to make every decision" in his capacity as the
Company's vice president, his conduct cannot constitute
fraud or misappropriation. Putting aside Defendants'
inconsistent positions as to the existence of fraud and
misappropriation, Defendants cite no authority a corporate
officer with control over Company assets cannot-as a matter
of law-use Company funds in a way constituting fraud or
misappropriation. We reject this argument.
conversion claim is not barred by the statute of
argue the Company's claim for conversion is barred by
Pennsylvania's two-year statute of
limitations. The statute of limitations begins to run
"as soon as the right to institute and maintain a suit
arises." Mistake, misunderstanding, or lack of
knowledge do not toll the statute of
recognized exception to the tolling of the statute of
limitations is the doctrine of fraudulent concealment, which
provides a "defendant may not invoke the statute of
limitations, if through fraud or concealment, he causes the
plaintiff to relax his vigilance or deviate from his right of
inquiry into the facts." The concept of fraud is
understood in the "broadest sense, which includes an
unintentional deception." Under this doctrine, the
statute of limitations begins to run "when the injured
party knows or reasonably should know of his injury and its
cause." The Company has the burden of proving
fraudulent concealment by "clear, precise, and
this doctrine, there must normally be "an affirmative
and independent act of concealment that would divert or
mislead the plaintiff from discovering the injury. Silence
can constitute fraud only where there is an affirmative duty
to disclose because of a fiduciary relationship between the
parties or a similar relationship of trust and
confidence." Mr. Kaplan had a fiduciary duty to the
Company as its vice president. Mr. Kaplan's silence can
therefore constitute fraud for the purposes of tolling the
statute of limitations. The statute of limitations does not
bar the Company's conversion claim because there is a
genuine dispute of material fact whether Mr. Kaplan's
silence while serving as vice president constitutes fraud
under the doctrine of fraudulent concealment.
There is a genuine issue of material fact as to the
Company's claim for ...