Antitrust Law Daily Wrap Up, RICO—8th Cir.: Lack of continuity cuts off racketeering claims in pocket knives case, (Jun 29, 2015)

By Greg Hammond, J.D.

A personalized pocket knives business was unable to establish the predicate acts of mail and wire fraud in support of its Racketeering and Corrupt Organizations Act (RICO) claims. The U.S. Court of Appeals in St. Louis partially affirmed a decision by the federal district court in Hot Springs, Arkansas, finding that the business failed to establish the continuity factor in support of demonstrating a pattern of racketeering activity (The Stonebridge Collection, Inc. v. Carmichael, June 26, 2015, Riley, W.).

The Stonebridge Collection, Inc. is a business that engraves and sells personalized pocket knives directly to end-use customers and to distributors. The company’s general manager, John Mark Taylor, quit his job and later opened a competing knife engraving business called Taylormade Unlimited, LLC, for which Keith and Glenn Carmichael—owners of personalized pocket knives distributor Cutting-Edge USA, LLC—purchased two laser engraving machines for and provided a loan $25,000. After copying Stonebridge’s files to a flashdrive, the company’s graphic designer, Steven Massey, also quit and started working for Taylormade. Taylormade allegedly used the files to solicit Stonebridge customers.

Stonebridge filed suit against its former employees, Taylormade, and Cutting-Edge—a distributor of Stonebridge—and the Carmichaels, alleging violations of RICO, the Arkansas Deceptive Trade Practices Act (ADTPA), conversion, and tortious interference. The lower court dismissed most of the claims, but partially ruled in favor of Stonebridge on its fraud and conversion counts. Stonebridge appealed (1) the partial dismissal of and damages award on the conversion claim, (2) the dismissal of its RICO, ADTPA, and tortious interference claims, and (3) the denial of attorney fees. The defendants cross-appealed the fraud and conversion judgments on the merits, each damages award, and the district court’s attorney fees order.

RICO. Stonebridge claimed that the defendants committed three sets of predicate acts that violated RICO: (1) the defendants used the mails to cause advertisements and promotion materials to be sent to plaintiff’s customers, which contained deliberately misleading statements regarding the source of origin of the knives they sold to customers; (2) Cutting-Edge’s receipt of the sample knives it fraudulently induced Stonebridge to send via United Parcel Service amounted to mail fraud; and (3) Massey’s emailing of Stonebridge’s converted files from Taylormade to Cutting-Edge and Cutting-Edge’s emailing of the customer list constituted wire fraud. All three predicate act arguments failed, the court affirmed, finding that the related acts did not continue over a period of time lasting at least one year. A pattern of racketeering activity could therefore not be shown, because there was no threat of continued criminal activity.

ADTPA. Stonebridge also appealed the lower court’s conclusion that the defendants did not violate ADTPA, arguing that the lower court ignored the catchall provision and that the defendants’ acts of conversion and fraud amounted to deceptive acts in business. However, without a showing that the defendants’ acts of conversion and fraud were consumer-oriented or impacted consumers in any way, the ADTPA was not applicable and the lower court did not err in dismissing the ADTPA claim, the appellate court decided.

State law claims. The dismissal of the tortious interference and attorney fees claims and partial dismissal of the fraud claim were also affirmed. The conversion claim, however, was remanded for an incorrect calculation of damages. Although the court affirmed damages consisting of 61 percent of net profits of the price of the main knife sold to Stonebridge’s customers, 61 percent of $27,300 is $16,653, not $16,380. The appellate court therefore affirmed the lower court’s decision in part, remanding the case only for reassessment of the amount of damages due for conversion of customer files.

The case numbers are 14-1514 and 14-1601.

Attorneys: Gary D. Marts, Jr. (Wright & Lindsey) and Perry Y. Young (Baxter Law) for The Stonebridge Collection, Inc. Derek Scott Hickam (D. Scott Hickam Law Firm) for Keith Carmichael, Glenna Carmichael, and Cutting-Edge USA, LLC. John Howard (Office of John Howard) for Steven Massey. Philip Maxwell Clay (Wood & Smith) for John Mark Taylor and Taylormade Unlimited, LLC.

Companies: The Stonebridge Collection, Inc.; Cutting-Edge USA, LLC; Taylormade Unlimited, LLC

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