Antitrust Law Daily Wrap Up, RICO—D. N.J.: Bank granted summary judgment on RICO claims against individual, controlled entity, (Sep 23, 2015)

By Michael Menzhuber, J.D., LL.M.

A bank was granted partial summary judgment on its claims that an individual and the various entities that he controlled violated that the federal Racketeer Influenced and Corrupt Organizations Act (RICO), breached the New Jersey RICO statute, committed common law fraud and conversion, and engaged in fraudulent transfers. With respect to the federal RICO claim, the federal district court in Camden, New Jersey granted the bank’s motion for summary judgment as to the individual and one of the entities that he controlled, since there was evidence that they participated in a check-kiting scheme and engaged in bank fraud by failing to purchase equipment with loan proceeds as a condition of the loans (Liberty Bell Bank v. Rogers, September 22, 2015, Hillman, N.).

Background. Beginning in 2005, Liberty Bell Bank extended over 100 secured loans to Lease Group Resources, Inc. (LGR), which was controlled by Luis G. Rogers., for the purchase of copy machines and other equipment. In instances where the equipment was being leased pursuant to a lease agreement assigned to LGR, LGR assigned the lease payments and the security interests in the equipment to Liberty. In instances where an end user entered into a lease directly with LGR, the lease was assigned to Liberty. However, many of the leases that were purportedly assigned to Liberty as collateral did not exist because the loan proceeds, although they were issued to LGR to purchase equipment, were often used for other purposes.

Rogers obtained loans from both Liberty and another bank for the purchase of the same equipment by offering that same equipment as collateral to both banks. Rogers caused LGR to do the same thing using equipment leases as collateral. In both cases, the two banks were left with competing interests in the collateral. Rogers and LGR also engaged in a check-kiting scheme whereby LGR would deposit a check with Liberty and, because of the same-day availability of deposits, would withdraw the funds before they had been paid by the bank upon whose accounts the check was drawn.

In granting Liberty’s motion, the court found that, based on the evidence of record, Rogers and the other LGR entities formed an association-in-fact enterprise. Specifically, the court found that: (1) the entities were owned and/or controlled by and for the benefit of Rogers; (2) Rogers caused the entities to open checking accounts at two banks other than Liberty; (3) checks were drawn on these accounts and made payable to LGR; (4) LGR deposited these checks to its account with Liberty; and (5) because of the same-day availability of deposits, LGR was able withdraw these funds before the funds had been paid by the bank upon whose account the check was drawn.

The court found that evidence of record demonstrated that Rogers and LGR participated in the conduct of the enterprise. However, there was no evidence that the remaining LGR entities played any part in directing the enterprise’s affairs. Consequently, the court dismissed Liberty’s summary judgment motion with respect to these entities.

The remaining RICO elements were also satisfied with respect to Rogers and LGR. To establish a “pattern of racketeering activity,” the defendant must have committed at least two predicate acts of racketeering. The check-kiting scheme alleged by Liberty satisfied this requirement because the Third Circuit has held that a check kiting scheme constitutes bank fraud and bank fraud is one of the predicate acts enumerated in RICO. The court also determined that the “pattern of racketeering activity” was met because: (1) by depositing multiple checks in an effort to defraud Liberty, Rogers engaged in separate violations of the bank fraud statute; and (2) while there was no longer an ongoing fraud, it lasted sufficiently long enough to constitute a “closed-end” pattern of continuous racketeering.

Although the court granted Liberty’s summary judgment motion with respect to its claim that Rogers and LGR violated RICO, it required Liberty to submit a separate application that would delineate which of the sixty-four loans procured were not secured by collateral, despite a contractual obligation to obtain such collateral, or were secured by doubly-pledged collateral.

The case number is No. 13-7148 (NLH/KMW).

Attorneys: Richard D. Gallucci, Jr. (Spector Gadon & Rosen P.C.) for Liberty Bell Bank. Douglas F. Johnson (Earp Cohn P.C.) for Martin Mellman, Receiver for Defendants Lease Group Resources, Inc., LGR Consortium, Inc., LGR Group, Inc., and University Copy Services. Corrine Samler Brennan (Klehr Harrison Harvey Branzburg LLP) for Susquehanna Bank. David A. Van Grouw (Lowenstein Sandler, PC) for Kyocera Document Solutions America, Inc.

Companies: Liberty Bell Bank; Lease Group Resources, Inc.; LGR Consortium, Inc.; LGR Group, Inc.; University Copy Services; Susquehanna Bank; Kyocera Document Solutions America, Inc.

Cases: RICO NewJerseyNews