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United States Court of Appeals, Tenth Circuit

The document is a court case regarding a shareholder's (Garbade) RICO claim against a mining corporation (Great Divide) and its majority shareholder and director (Levin). It summarizes that Levin took secret payments from corporate funds to repay loans he had made to the corporation. The court found that Levin's actions did not constitute a "pattern of racketeering activity" as required for RICO claims, as his actions had a single objective to repay his loans, not ongoing criminal activity. It also held the corporation could not be both the RICO "enterprise" and "person", and that the corporation did not receive illegal funds as required for liability. Therefore, it affirmed the lower court
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0% found this document useful (0 votes)
56 views4 pages

United States Court of Appeals, Tenth Circuit

The document is a court case regarding a shareholder's (Garbade) RICO claim against a mining corporation (Great Divide) and its majority shareholder and director (Levin). It summarizes that Levin took secret payments from corporate funds to repay loans he had made to the corporation. The court found that Levin's actions did not constitute a "pattern of racketeering activity" as required for RICO claims, as his actions had a single objective to repay his loans, not ongoing criminal activity. It also held the corporation could not be both the RICO "enterprise" and "person", and that the corporation did not receive illegal funds as required for liability. Therefore, it affirmed the lower court
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831 F.

2d 212
RICO Bus.Disp.Guide 6765

Albert M. GARBADE, Jr., on behalf of himself and all other


stockholders of Great Divide Mining and Milling
Corporation, Plaintiff-Appellant,
v.
GREAT DIVIDE MINING AND MILLING CORPORATION,
a Colorado
corporation, and Milton M. Levin, Defendants-Appellees.
No. 86-2544.

United States Court of Appeals,


Tenth Circuit.
Oct. 15, 1987.
Rehearing Denied Dec. 23, 1987.

G. Robert Blakey of McGuire, Cornwell & Blakey, P.C. (F. Kelly Smith,
with him on brief), Denver, Colo. for plaintiff-appellant.
John R. Henderson of Vranesh and Raisch, Boulder, Colo. for defendantsappellees.
Before SEYMOUR, SETH and BALDOCK, Circuit Judges.
SETH, Circuit Judge.

The defendant Great Divide Mining and Milling Corporation, a Colorado


corporation, held several mining claims. It was organized by plaintiff's father
who loaned it money from time to time. The defendant Levin later became the
majority stockholder and he also loaned money to Great Divide beginning in
the 1960s. He may have accepted shares of stock as payment for some of his
loans. In 1976 Great Divide leased mining claims to Noranda Exploration for
annual payments. This was apparently the first source of income for Great
Divide for a long time. Mr. Garbade, Sr. and defendant Levin, then the Vice
President, both wanted this to be applied in payment of their loans made to the
company. Shortly thereafter Mr. Garbade, Sr. died leaving Mr. Levin as the

principal officer, majority stockholder and a director.


2

Thereafter as the lease payments were received by the company defendant


Levin would apply the funds to repay his loans and intended to continue until
he was paid in full with interest. He later negotiated an additional lease of
corporate claims with a Mr. Baumgartner which generated more income to
Great Divide, which he then applied to the same purpose.

The applications of corporate funds were made secretly and without the
knowledge or concurrence of other stockholders. It is this secret withdrawal of
corporate income which the plaintiff asserts was illegal and constituted the
fraud upon which the RICO and pendent state fraud claims were based.

The trial court dismissed the corporate defendant, Great Divide, entered
summary judgment for defendant Levin, and dismissed the state claims, 645
F.Supp. 808. The court concluded that there was asserted nothing to constitute a
"pattern of racketeering activity" by defendant Levin, 18 U.S.C. Sec. 1961(5);
that there was no Sec. 1962(a) violation arising from the withdrawal of funds
from the corporation; and that under Sec. 1962(c) and Sec. 1962(a) in these
circumstances the corporation would not be both an "enterprise" and a
"person." The plaintiff has appealed.

The appellant alleged that the acts of defendant Levin violated 18 U.S.C. Sec.
1962(a). This section is concerned with the use of funds derived from a "pattern
of racketeering activity" to acquire interests in, or invest in, or to operate
legitimate enterprises. The complaint was directed to asserted fraudulent
withdrawal of funds from the corporation and not to investments in the concern.
There were no facts to support an assertion that the funds loaned to the
corporation were from a source described in Sec. 1962(a) nor used for the
prohibited purposes.

The complaint further alleges that the corporate defendant, Great Divide,
violated 18 U.S.C. Sec. 1962(c). The trial court dismissed the corporation on
the ground that it could not in these circumstances be both an "enterprise" and a
"person" within the purposes and wording of the section. We must agree.
Section 1962(c) makes it unlawful for a "person" to enter the activities of an
"enterprise" using racketeering activities. References are to "employed by" and
"associated with." The section does not relate to corporate or enterprise liability.
Schofield v. First Commodity Corp., 793 F.2d 28 (1st Cir.); Haroco, Inc. v.
Amer. Nat'l Bank & Trust Co., 747 F.2d 384 (7th Cir.); United States v.
Computer Sciences Corp., 689 F.2d 1181 (4th Cir.).

There is no indication whatever that the corporation was in any way benefited
by the alleged acts of any defendant. The existence of such benefits have
provided, in several cases, an exception to this conclusion and to impose
corporate liability under Sec. 1962(a).

As to the claim of corporate liability under Sec. 1962(a), the trial court
dismissed the corporate defendant. Again we agree. The "person" and
"enterprise" combination liability can only occur when the corporation actually
is the direct beneficiary of the pattern of racketeering activity, Haroco, Inc. v.
Amer. Nat'l Bank & Trust Co., 747 F.2d 384 (7th Cir.); also, where it is to
disgorge illegally obtained proceeds, Masi v. Ford City Bank & Trust Co., 779
F.2d 397 (7th Cir.); or where the statute seeks to reach the proceeds of illegal
activities, Schreiber Distributing Co. v. Serv-Well Furniture Co., 806 F.2d
1393 (9th Cir.).

In the case before us the defendant corporation received no illegally obtained


funds as contemplated by the statute. Its dismissal by the trial court was proper.

10

This brings us to the Sec. 1962(c) claim against the defendant Levin and more
particularly to the issue of whether there was shown to be "a pattern of
racketeering activity." In our view, when Torwest DBC, Inc. v. Dick, 810 F.2d
925 (10th Cir.), is applied to these facts and circumstances the conclusion must
be reached that the statutory requirements for such a Sec. 1962(c) claim were
not met.

11

Torwest decided what was not a pattern of racketeering activity, as did Condict
v. Condict, 815 F.2d 579 (10th Cir.). We will do the same and again not
attempt to construct an affirmative definition of what would constitute such a
pattern. Thus as was said in Torwest:

12 reaching this conclusion, we decline to go beyond the facts before us to


"In
formulate a bright-line test in the abstract."
13

14

As the description of the facts recited, the defendant Levin made the several
secret withdrawals in an attempt to have the loans he had made to the company
repaid out of company funds which he could control as a first priority. This
method of securing repayment was to continue until the loan, with interest, had
been repaid and nothing more. Thus there existed a clear and definite single
objective for his acts.
This would seem to fit well into the holding in Torwest as to the scheme there

14

concerned:

15 achieve a single discrete objective does not in and of itself create a threat of
"[T]o
ongoing activity, even when that goal is pursued by multiple illegal acts, because the
scheme ends when the purpose is accomplished."
16

The Court in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87
L.Ed.2d 346, referred to the purpose of the statute as one to meet "the threat of
continuing activity" and not "sporadic activity." The elements required are
described in Torwest and in its analysis of Sedima. In Torwest and here there is
nothing from which there could be inferred a continuing scheme. The
continuity element is absent here.

17

We have examined the arguments of appellant in regard to the Baumgartner


lease on a portion of the corporate property which was negotiated and signed by
the defendant Levin. He was then apparently the only corporate officer. We
cannot conclude that this lease, nor the circumstances surrounding it, add any
additional elements to the case relative to the issues raised and need no separate
discussion.

18

We thus agree with the action of the trial court in granting summary judgment
for the defendant Levin and in the dismissal of the corporate defendant.

19

The judgment of the trial court is AFFIRMED.

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