Vickie Fogie v. Thorn Americas, Inc. , 190 F.3d 889 ( 1999 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 98-2442
___________
Vickie Fogie, Joan Leonard, and *
Angela Adams, on behalf of themselves *
and all others similarly situated; *
*
Plaintiffs - Appellees, *
*
v. * Appeals from the United States
* District Court for the
THORN Americas, Inc., * District of Minnesota.
*
Defendant - Appellant, *
*
THORN EMI North America *
Holdings, Inc., a Delaware *
corporation, *
*
Defendant - Appellant. *
_____________
No. 98-2447
_____________
Vickie Fogie, Joan Leonard, and *
Angela Adams, on behalf of themselves *
and all others similarly situated; *
*
Plaintiffs - Appellants, *
*
v. *
*
THORN Americas, Inc., formerly *
known as Rent-A-Center, Inc., *
*
Defendant - Appellee, *
*
THORN EMI North America *
Holdings, Inc., A Delaware *
corporation, *
*
Defendant - Appellee. *
___________
Submitted: May 10, 1999
Filed: August 20, 1999
___________
Before RICHARD S. ARNOLD, JOHN R. GIBSON, and BOWMAN, Circuit Judges.
___________
BOWMAN, Circuit Judge.
Vickie Fogie, Joan Leonard, and Angela Adams filed a class-action lawsuit
against THORN Americas, Inc. and its parent companies, including THORN EMI
North America Holdings, Inc. (TEMINAH),1 alleging the companies had violated
Minnesota and federal law while operating a rent-to-own business. The District Court
entered judgment for the plaintiff class on its claim that THORN Americas and
TEMINAH committed usury in violation of Minnesota law by charging excessive
1
THORN Americas, Inc. is a wholly owned subsidiary of THORN EMI, Inc.,
which is a wholly owned subsidiary of TEMINAH, the ultimate North American parent
company. TEMINAH, in turn, is a wholly owned subsidiary of THORN EMI, plc, a
British conglomerate that owns and operates businesses worldwide. The plaintiffs
originally sued additional related companies such as THORN EMI (USA) Holdings,
Inc., but these companies subsequently merged into THORN Americas or TEMINAH,
thereby ceasing to have a separate corporate existence.
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interest rates on credit sales of consumer goods. The plaintiffs recovered
approximately $30 million in damages on their usury claim, and the District Court
dismissed their other claims. THORN Americas and TEMINAH appeal several aspects
of the District Court's damage award on the usury claim. The plaintiffs cross-appeal,
claiming the District Court erred when it dismissed their claims that the defendants
violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.
§§ 1961-1968 (1994).
I.
As described in this Court's previous opinion, Fogie v. THORN Americas, Inc.,
95 F.3d 645 (8th Cir. 1996), appellant THORN Americas operates stores called Rent-
A-Centers (RAC)2 that offer household goods, including furniture and appliances, for
sale or lease. Customers choosing to lease goods enter rent-to-own agreements with
RAC. Under the agreements, customers pay a portion of the goods' purchase price plus
interest and take possession of the goods for an initial period of a week or month. At
the end of this period, a customer either returns the goods or renews the agreement.
Once a rent-to-own agreement has been renewed a designated number of times, the
customer obtains ownership of the goods.
In 1991, several RAC customers in Minnesota (plaintiff class representatives
Fogie, Leonard, and Adams) filed a class-action lawsuit against RAC, alleging that
RAC had engaged in usury and deceptive and unlawful business practices. The
plaintiffs claimed these practices violated several Minnesota statutes, including the
Consumer Credit Sales Act (CCSA), Minn. Stat. § 325G.15-.16 (1998), and the
General Usury Statute, Minn. Stat. § 334.01-.20 (1998). The plaintiffs also claimed
2
This opinion, like our earlier opinion, uses RAC to refer collectively to THORN
Americas and its parent companies, including appellant TEMINAH. We also capitalize
"THORN," even when citing to other opinions, to reflect THORN's own practice.
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that THORN Americas and its parent companies' actions violated several federal
statutes, including RICO, § 18 U.S.C. §§ 1961-1968. Defending its practices, RAC
argued that its rent-to-own agreements complied with Minnesota and federal law, in
particular with Minnesota's Rental Purchase Agreement Act (RPAA), Minn. Stat.
§ 325F.84-.97 (1998).
In March 1993, the District Court certified the plaintiff class to include "all
persons who have entered into rent to own contracts on or after August 1, 1990 in the
State of Minnesota with the defendants or any of their predecessors or successors in
interest in a written form substantially similar to that executed by plaintiff Fogie."
Fogie v. Rent-A-Center, Inc., Civ. No. 4-92-533, slip op. at 17-18 (D. Minn. Mar. 2,
1993) (Memorandum Opinion and Order). The class certification encompasses
individuals who entered approximately 58,000 agreements. The District Court also
determined the rent-to-own agreements were "consumer credit sales" governed by the
CCSA and entered partial summary judgment for the plaintiffs on their CCSA claim.
See id. at 17. The court's decision to treat rent-to-own agreements as consumer credit
sales governed by the CCSA was subsequently endorsed by the Minnesota Supreme
Court in its response to the District Court's certified questions, Fogie v. Rent-A-
Centers, Inc., 518 N.W.2d 544 (Minn. 1994), and in a separate case, Miller v.
Colortyme, Inc., 518 N.W.2d 544 (Minn. 1994).
When answering the District Court's certified questions, the Minnesota Supreme
Court also directed the District Court to apply the Minnesota General Usury Statute's
limitation on interest rates to the rent-to-own agreements. See Fogie, 518 N.W.2d at
544. The District Court therefore declared RAC's rent-to-own agreements usurious as
a matter of law under CCSA and the Minnesota General Usury Statute and "unlawful
debt" under RICO. It permanently enjoined RAC from entering into rent-to-own
agreements with interest rates exceeding the General Usury Statute's limits, voided the
existing rent-to-own agreements with the plaintiff class ab initio, ordered rescission of
all payments made by the plaintiff class to RAC, and prohibited RAC from collecting
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or receiving future payments from class members under the voided agreements. RAC
appealed the award of injunctive relief and this Court affirmed, conducting
interlocutory review only of the injunctive relief and interdependent matters.
See Fogie, 95 F.3d at 648, 654.
The District Court later modified its original order, directing the defendants to
hold in escrow all payments received from rent-to-own customers during the litigation.
Appointing a special master to determine the quantum of damages owed to the plaintiff
class on its usury claim and to plan the damage distribution, the District Court also
entered summary judgment for the defendants on the plaintiffs' non-usury claims,
including their claims that THORN Americas and its parent companies had violated
RICO.
The special master submitted his report and recommendations, and the District
Court essentially adopted them. It entered judgment in favor of the plaintiffs in the
amount of $29,898,250 plus $3418 per day from December 9, 1997, to April 15, 1998.
The District Court also adopted the special master's recommended plan for depositing
and distributing the damages, determined fees for the plaintiffs' attorneys, and ordered
that all funds remaining unclaimed after complete distribution be placed in a cy
pres fund. This appeal followed.
II.
We consider first the issues raised in the plaintiffs' cross-appeal, which
challenges the District Court's dismissal of the plaintiffs' RICO claims. To recover in
a civil suit for a violation of RICO, a plaintiff must prove: (1) that the defendant
violated 18 U.S.C. § 1962; (2) that the plaintiff suffered injury to business or property;
and (3) that the plaintiff's injury was proximately caused by the defendant's RICO
violation. See 18 U.S.C. § 1964(c) (1994); Holmes v. Securities Investor Protection
Corp., 503 U.S. 258, 265-68 (1992); see also United HealthCare Corp. v. American
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Trade Ins. Co., 88 F.3d 563, 572 (8th Cir. 1996). The plaintiffs alleged that RAC
violated subsections (a), (c), and (d) of § 1962 and that each of those violations caused
the plaintiffs injuries for which they can recover under § 1964(c). The District Court
for various reasons dismissed the plaintiffs' claims for alleged violations of § 1962(a),
(c) and (d). We evaluate the plaintiffs' claims under each subsection separately.
A.
The District Court ruled the plaintiffs could not recover for alleged violations of
§ 1962(a) because they did not have standing under § 1964(c) to bring such claims.
Section 1962(a) states that
It shall be unlawful for any person who has received any income derived
. . . from a pattern of racketeering activity or through collection of an
unlawful debt in which such person has participated as a principal . . . to
use or invest . . . any part of such income, or the proceeds of such income,
in acquisition of any interest in, or the establishment or operation of, any
enterprise which is engaged in . . . interstate or foreign commerce.
18 U.S.C. § 1962(a) (1994). Under §1964(c), only those injured "by reason of" a
§ 1962 violation have standing to bring a civil suit. See 18 U.S.C. § 1964(c); Sedima,
S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985); Appletree Square I, L.P. v. W.R.
Grace & Co., 29 F.3d 1283, 1286 (8th Cir. 1994). The District Court determined that
RAC's usury constituted the collection of unlawful debts and that the plaintiffs were
individuals injured by that unlawful debt collection. But the District Court concluded
that only individuals injured by a completed violation of § 1962(a), those injured by the
use or investment of the racketeering income, have been injured "by reason of" a §
1962(a) claim as § 1964(c) requires. Therefore, since the collection of unlawful debts
was not by itself a violation of § 1962(a), the District Court dismissed the plaintiffs' §
1962(a) claim for lack of standing.
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Determining whether only those injured by the use or investment of racketeering
income have standing to bring a civil suit for violation of § 1962(a), or whether those
injured by the predicate acts of the racketeering activity also have standing, involves
an issue of first impression for this Court, one that has split the other circuits. Seven
of the eight circuits that have addressed the issue agree with the District Court that §§
1962(a) and 1964(c) limit standing only to plaintiffs who have suffered injury from the
use or investment of the racketeering income. See, e.g., Vemco, Inc. v. Camardella,
23 F.3d 129, 132 (6th Cir.), cert. denied, 513 U.S. 1017 (1994); Nugget Hydroelectric,
L.P. v. Pacific Gas & Elec. Co., 981 F.2d 429, 437 (9th Cir. 1992), cert. denied, 508
U.S. 908 (1993); Parker & Parsley Petroleum v. Dresser Indus., 972 F.2d 580, 584 &
n. 4 (5th Cir. 1992); Glessner v. Kenny, 952 F.2d 702, 708-10 (3d Cir.1991); Danielsen
v. Burnside-Ott Aviation Training Ctr., Inc., 941 F.2d 1220, 1229-30 (D.C. Cir.1991);
Ouaknine v. MacFarlane, 897 F.2d 75, 82 (2d Cir.1990); Grider v. Texas Oil & Gas
Corp., 868 F.2d 1147, 1149-51 (10th Cir.), cert. denied, 493 U.S. 820 (1989). The
Fourth Circuit, however, allows plaintiffs whose injuries flow from the predicate acts
as well as to those injured by the use or investment of the racketeering income to bring
a §1962(a) claim. See Busby v. Crown Supply, Inc., 896 F.2d 833, 836-40 (4th Cir.
1990).
After examining the matter de novo, we believe that the majority position is
correct: under RICO, only individuals who have suffered injury from the use or
investment of racketeering income have standing to bring a civil suit under §§ 1962(a)
and 1964(c). As has been discussed by the other circuits, two grounds support this
conclusion. First, § 1964(c) allows only persons injured "by reason of" a § 1962
violation to bring a civil suit under RICO. A person injured by predicate racketeering
acts, such as RAC's unlawful debt collection, is not injured "by reason of" a violation
of § 1962(a). Rather, that person is injured by conduct constituting only a predicate
act. Cf. Bennett v. Berg, 685 F.2d 1053, 1060 (8th Cir. 1982) ("Significantly, [RICO]
forbids the predicate acts of racketeering only insofar as an 'enterprise' is involved. . . .
RICO is not a recidivist statute with enhanced penalties for acts of racketeering that
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are elsewhere proscribed in the criminal code."), cert. denied, 464 U.S. 1008 (1983).
In this case, for example, the plaintiffs were injured by RAC's collection of unlawful
debt. They have recovered substantial damages for this injury under Minnesota usury
law, and later in this opinion we uphold that recovery. RAC's collection of unlawful
debt, however, does not constitute a violation of § 1962(a): it does not involve the use
or investment of racketeering income "in acquisition of any interest in, or the
establishment or operation of, any enterprise which is engaged in, or the activities of
which affect, interstate or foreign commerce." 18 U.S.C. § 1962(a). Therefore, the
plaintiffs' injuries did not flow from a violation of § 1962 as § 1964(c) requires.
Rather, RAC violated § 1962(a) only when it used or invested income from its unlawful
debt collection in a manner prohibited by § 1962(a). RICO grants standing only to
parties injured by the use or investment of the unlawfully obtained income, the
completed § 1962(a) violation, and the plaintiffs are not such injured parties. See
also Nugget Hydroelectric, 981 F.2d at 437 (criticizing Busby because, by not requiring
that a plaintiff suffer injury from the use or investment of the racketeering income, the
Fourth Circuit allows "an individual to recover for injuries caused by an action that
does not constitute a violation of § 1962(a)").
Second, if individuals injured only by predicate acts could bring a civil action
under § 1962(a), § 1962(c) would be rendered superfluous. Section 1962(c) creates
liability for those persons who "conduct or participate . . . in the conduct" of a RICO
enterprise. See 18 U.S.C. § 1962(c) (1994); see also Reves v. Ernst & Young, 507
U.S. 170, 178-79 (1993). If § 1962(a) were read to allow any person harmed by a
predicate act to bring a civil suit under RICO, a defendant could be held liable for
violating RICO when that defendant engaged in a predicate act, whether or not that
defendant also conducted or participated in the conducting of a RICO enterprise. The
restriction of § 1962(c) liability to those in management positions would be
meaningless. Reading § 1962(a) so broadly that it renders § 1962(c) meaningless runs
contrary to the interpretive canon that statutes should be read to give "each word some
operative effect." Walters v. Metropolitan Educ. Enters., 519 U.S. 202, 209 (1997)
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(citing United States v. Menasche, 348 U.S. 528, 538-39 (1955)). To prevent almost
unlimited civil liability plainly contrary to the statutory scheme of § 1962, standing to
bring a civil suit for a violation of § 1962(a) must be limited to those plaintiffs whose
injuries flow from the use or investment of the racketeering income.
The plaintiffs claim they can satisfy a use-or-investment requirement because
RAC reinvested the income it obtained from the unlawful debt collection in the
operation and maintenance of the rent-to-own business. Such allegations of
reinvestment do not suffice to give the plaintiffs standing under §§ 1962(a) and
1964(c). Rather, to bring a claim under § 1962(a), a plaintiff must allege an injury from
the use or investment of the racketeering income that is separate and distinct from
injuries allegedly caused by the defendant's engaging in the predicate acts. See Vemco,
23 F.3d at 132-33. A distinct injury is required because, if reinvestment "were to
suffice, the use-or-investment injury requirement would be almost completely
eviscerated when the alleged pattern of racketeering is committed on behalf of a
corporation. . . . Over the long term, corporations generally reinvest their profits,
regardless of source." Brittingham v. Mobil Corp., 943 F.2d 297, 305 (3d Cir.1991).
The plaintiffs have not and apparently cannot allege an injury from a use or investment
distinct or separate from the predicate acts they allege. Therefore, the District Court
properly dismissed the plaintiffs' § 1962(a) claim for lack of standing.
B.
The plaintiffs also appeal the District Court's grant of summary judgment to the
defendants on the plaintiffs' § 1962(c) claim. Section 1962(c) makes it "unlawful for
any person employed by or associated with any enterprise engaged in . . . interstate or
foreign commerce[] to conduct or participate, directly or indirectly, in the conduct of
such enterprise's affairs through a pattern of racketeering activity or collection of
unlawful debt." 18 U.S.C. § 1962(c) (1994). The person who conducts or participates
in the conduct of the RICO enterprise must be distinct from the enterprise itself. See
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United HealthCare, 88 F.3d at 570. The District Court concluded the plaintiffs failed
to show the requisite distinctiveness of the persons and enterprise, so it granted the
defendants summary judgment on the plaintiffs' § 1962(c) claim.
The plaintiffs assert that the persons allegedly conducting the RICO enterprise,
THORN Americas and TEMINAH, are sufficiently distinct from the enterprise, RAC.
The plaintiffs explain that THORN Americas conducts the usurious rental-purchase
business nationwide while TEMINAH, the ultimate North American parent company,
receives much of the illegal income. By "RAC," the plaintiffs say they refer to the
alleged RICO enterprise, the "conglomerate of corporate entities that conduct the
corporate affairs of THORN EMI, plc." Appellee/Cross-Appellant's Br. at 45. The
plaintiffs also describe the roles of some of the other corporate entities that made up the
RAC conglomerate: THORN EMI, Inc., for example, was "involved in the cash
management," including paying THORN Americas' bills and transferring the usurious
profits to other related entities; and THORN EMI, plc headed the international
corporate structure. See id.
A corporation such as THORN Americas or TEMINAH may serve as a "person"
for purposes of RICO § 1962(c). See 18 U.S.C. § 1961(3) (1994) (defining "person"
as including "any individual or entity capable of holding a legal or beneficial interest
in property"); see also Atlas Pile Driving Co. v. DiCon Fin. Co., 886 F.2d 986, 995 (8th
Cir. 1989) (involving a RICO enterprise allegedly conducted by two corporate
persons). An association of business entities such as RAC also may serve as an
"enterprise." See United HealthCare, 88 F.3d at 570; Atlas Pile Driving, 886 F.2d at
995 n.7. In this case, however, the plaintiffs allege that the RICO enterprise consists
solely of wholly owned, related business entities, and that some of the wholly owned
subsidiaries conducted the racketeering activities for the enterprise.
This Court has not previously considered whether the § 1962(c) distinctiveness
requirement may be satisfied when wholly owned subsidiaries are the persons who
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conduct a RICO enterprise consisting only of the parent company and other related
business entities that comprise the defendants' corporate family. When we look to the
other circuits, we find little direct guidance, but we do find substantial indications that
to impose liability on a subsidiary for conducting an enterprise comprised solely of the
parent of the subsidiary and related businesses would be to misread the statute. Ten
other circuits require that the person and enterprise be distinct.3 Most of these circuits
have suggested some limits on when related business entities, or business entities and
their employees, may serve as both the person and enterprise under § 1962(c). See,
e.g., Bachman v. Bear, Stearns & Co., No. 98-2396, 1999 WL 335343, at *2 (7th Cir.
May 26, 1999);4 Brannon v. Boatmen's First National Bank, 153 F.3d 1144, 1146-47
(10th Cir. 1998);Compagnie de Reassurance D'Ile De France v. New England
Reinsurance Corp., 57 F.3d 56, 92 (1st Cir. 1995); Davis v. Mutual Life Ins. Co., 6
3
The sole exception is the Eleventh Circuit, which does not require
distinctiveness between the person and enterprise. See Cox v. Administrator United
States Steel & Carnegie, 17 F.3d 1386, 1398 (11th Cir. 1994), cert. denied, 513 U.S.
1110 (1995).
4
The plaintiffs claim the Seventh Circuit has determined that allegations that
subsidiaries conducted a parent-company enterprise are sufficient. The plaintiffs base
their argument on Haroco, Inc. v. American National Bank & Trust Co., 747 F.2d 384
(7th Cir. 1984),aff'd on other grounds, 473 U.S. 606 (1985), in which the Seventh
Circuit asserted that it is "virtually self-evident that a subsidiary acts on behalf of, and
thus conducts the affairs of, its parent corporation." 747 F.2d at 402-03. More
recently, however, the Seventh Circuit has indicated that related business entities may
not serve as both the person and enterprise. In Bachman v. Bear, Stearns & Co., No.
98-2396, 1999 WL 335343 (7th Cir. May 26, 1999), the court appears to reject the
conclusion it suggested in Haroco. Stating that it deliberately omitted four corporations
when it described the alleged RICO enterprise, the Court explains, "A firm and its
employees, or a parent and its subsidiaries, are not an enterprise separate from the firm
itself." Id. at *2; see also Fitzgerald v. Chrysler Corp., 116 F.3d 225, 226-27 (7th Cir.
1997) (affirming dismissal on distinctiveness grounds of a complaint that alleged
Chrysler Corporation was the person conducting an enterprise comprised of the
"Chrysler family").
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F.3d 367, 377 (6th Cir. 1993), cert. denied, 510 U.S. 1193 (1995); NCNB Nat'l Bank
v. Tiller, 814 F.2d 931, 936 (4th Cir. 1987), overruled on other grounds by Busby, 896
F.2d at 841-42; Atkinson v. Anadarko Bank & Trust Co., 808 F.2d 438, 440-41 (5th
Cir.) (per curiam), cert. denied, 483 U.S. 1032 (1987). Much of the controversy among
these circuits concerns whether officers or employees of an entity may conduct an
enterprise consisting of the employing entity. Compare, e.g., Jaguar Cars, Inc. v. Royal
Oaks Motor Co., 46 F.3d 258, 268-69 (3d Cir. 1995) (stating the distinctiveness
requirement is satisfied with allegations of "conduct by officers or employees who
operate or manage a corporate enterprise"); Sever v. Alaska Pulp Corp., 978 F.2d
1529, 1534 (9th Cir. 1992) (determining that employees may conduct their employer
as a RICO enterprise), with Riverwoods Chappaqua Corp. v. Marine Midlands Bank,
30 F.3d 339, 344-45 (2d Cir. 1994) (stating that a group allegedly consisting of a
corporation and two of its employees could not "conduct" the corporation itself as the
RICO enterprise). The plaintiffs have not claimed that any employees or officers of
RAC were the persons conducting the RICO enterprise, however, so we need not
address this issue.
But we must consider whether a subsidiary may be sufficiently distinct from its
parent or other related subsidiaries so as to satisfy § 1962(c)'s distinctiveness
requirement. We believe it cannot. A parent company and a subsidiary are separate
legal entities, but this is not enough. Nor is it enough that the parent and subsidiary
corporations have different roles in the alleged enterprise, as would be typical of every
parent-subsidiary relationship. Rather, there must be a greater showing that the parent
and subsidiary are distinct than the mere fact that they are separate legal entities. To
conclude otherwise would be to read the distinctiveness requirement out of RICO.
Turning our attention to the present case, the plaintiffs have not shown sufficient
distinctiveness between THORN Americas; TEMINAH; THORN EMI, plc; or any of
the other related business entities that allegedly comprise the RAC enterprise. All these
entities are part of one corporate family operating under common control. Therefore,
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we affirm the District Court's granting of summary judgment to the defendants on the
plaintiffs' § 1962(c) claim.
C.
The plaintiffs' final RICO argument is that the District Court incorrectly granted
the defendants summary judgment on a claim that THORN EMI, plc; THORN
Americas; and TEMINAH violated § 1962(d) by conspiring to violate RICO.
Subsection (d) makes it "unlawful for any person to conspire to violate any of the
provisions of subsection (a), (b), or (c) of [§ 1962]." 18 U.S.C. § 1962(d) (1994). The
District Court concluded the plaintiffs' § 1962(d) claim necessarily failed because the
plaintiffs lacked standing to bring a § 1962(a) claim and their § 1962(c) claim failed as
a matter of law.
We affirm the District Court's grant of summary judgment on a different basis.
Cf. Porous Media Corp. v. Pall Corp., 173 F.3d 1109, 1116 (8th Cir. 1999) ("[W]e
may affirm the district court's judgment on any basis supported by the record."). The
plaintiffs allege that the only participants in this conspiracy were THORN EMI, plc and
its wholly owned subsidiaries THORN Americas and TEMINAH. See Third Amended
Complaint at 18. Such allegations fail to allege a conspiracy, because as a matter of
law a parent corporation and its wholly owned subsidiaries are legally incapable of
forming a conspiracy with one another. We believe that Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752 (1984), in which the Supreme Court held that
a parent and its wholly owned subsidiary lacked the capacity to conspire to violate §
1 of the Sherman Act, requires the identical conclusion when the same principle is
applied to alleged parent-subsidiary RICO civil conspiracies.
In Copperweld, the Supreme Court stated that "[i]n any conspiracy, two or more
entities that previously pursued their own interests separately are combining to act as
one for their common benefit." Copperweld, 467 U.S. at 769 (emphasis added). The
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Court determined that an alleged conspiracy between a parent and a subsidiary lacks
this crucial element:
A parent and its wholly owned subsidiary have a complete unity of
interest. Their objectives are common, not disparate; their general
corporate actions are guided or determined not by two separate corporate
consciousnesses, but one. They are not unlike a multiple team of horses
drawing a vehicle under the control of a single driver.
Id. at 771. The Court also noted that the whole notion of an "agreement" between a
parent and a wholly owned subsidiary "lacks meaning." Id.
In our analysis of the plaintiffs' § 1962(c) claim, we have already discussed the
plaintiffs' failure to show any distinctiveness or independence between THORN EMI,
plc and its subsidiaries THORN Americas and TEMINAH. This lack of distinctiveness
or independence reinforces the conclusion derived from Copperweld that THORN
EMI, plc and its subsidiaries "are common, not disparate," and that their actions are
driven by a single consciousness. Cf. id. Therefore, we conclude that THORN EMI,
plc; THORN Americas; and TEMINAH as wholly related business entities are
incapable of conspiring with one another to violate § 1962(c).5
We recognize that the Seventh and Ninth Circuits have reached a conclusion
different from ours. In Ashland Oil, Inc. v. Arnett, 875 F.2d 1271 (7th Cir. 1989), the
Seventh Circuit determined that Copperweld does not prevent a RICO conspiracy from
consisting solely of a parent and its wholly owned subsidiary because, according to the
5
We do not consider the situation in which a corporation and its officers or
employees allegedly formed a conspiracy. Cf. United States v. American Grain &
Related Indus., 763 F.2d 312, 320 (8th Cir. 1985) (concluding that a corporation may
be convicted of criminal conspiracy where corporate agents conspired with each other
on behalf of the corporation).
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Seventh Circuit, special policy considerations embodied in the Sherman Act do not
apply in RICO cases. See id. at 1281 (discussing the theoretical "community of
interest" that causes a parent and subsidiary to pose "no threat to the goals of antitrust
law--protecting competition"). The Seventh Circuit stated that liability should extend
to intracorporate RICO conspiracies because "intracorporate conspiracies do threaten
RICO's goals of preventing the infiltration of legitimate businesses by racketeers and
separating racketeers from their profits." Id. In Webster v. Omnitrition International,
Inc., 79 F.3d 776, 787 (9th Cir.), cert. denied, 519 U.S. 865 (1996), the Ninth Circuit
relied upon the Seventh Circuit's reasoning to extend § 1962(d) liability to a wholly
intracorporate conspiracy.6
We find this reasoning unconvincing. Neither the Seventh nor the Ninth Circuit
explains why, when two entities are under common control and there is no
distinctiveness or independence of action, an agreement or understanding between them
creates any of the special dangers § 1962(d) targets. In the absence of such an
explanation, we read the plaintiffs' allegations as essentially asserting that THORN
EMI, plc conspired with its arms and hands. Such allegations are not sufficient. See
United States v. Computer Sciences Corp., 689 F.2d 1181, 1190 (4th Cir.1982) ("[W]e
would not take seriously . . . an assertion that a defendant could conspire with his right
arm, which held, aimed and fired the fatal weapon."), cert. denied, 459 U.S. 1105
(1983).
Therefore, although we do not reach the ground upon which the District Court
relied, we affirm the District Court's grant of summary judgment to the defendants on
the plaintiffs' § 1962(d) claim.
6
We note that the Seventh Circuit's recent decisions regarding intracorporate
liability under § 1962(c), see supra note 4, appear to undercut the conclusions it
reached in Ashland Oil.
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III.
Now we turn to the arguments raised in RAC's direct appeal regarding the
damages awarded to the plaintiff class on its state-law usury claim. RAC challenges
two aspects of the District Court's award of damages to individual plaintiffs. In order
to give these challenges a context, we briefly summarize the District Court's damage
distribution plan. The distribution plan divides plaintiffs into three groups. The first
group includes two subgroups: those plaintiffs who leased goods that RAC did not
designate for return and those who had previously returned their leased goods to RAC.
Under the District Court's distribution plan, plaintiffs in both subgroups recover all
principal and interest paid. The second group of plaintiffs consists of those plaintiffs
who, when RAC designated their goods for return, elected to retain the goods. These
plaintiffs receive a refund only of the interest they paid under the rent-to-own
agreements. The third group also leased goods that RAC designated for return, but,
unlike the second group, the third group elected to return those goods. The District
Court's order grants this group, like the first group, repayment of all principal and
interest paid. See Fogie v. THORN Americas, Inc., Civ. No. 3-94-359, slip op. at 7-8
(D. Minn. Apr. 15, 1998) (Order for Judgment; Orders in Enforcement of Injunction,
Allowing Attorneys' Fees and Costs, and Plan of Distribution) [hereinafter "Order for
Judgment"].
The first aspect of the damage distribution plan that RAC challenges is that it
allows some plaintiffs--apparently members of the first and second groups--to keep the
goods they had leased without paying RAC the full value of those goods. According
to RAC, plaintiff class members failed to pay the department-store price for the goods
leased (i.e., the fair value of the goods as determined by an unrelated retail seller) in
approximately 37,500 of the 58,000 rent-to-own agreements covered by the class
certification. The distribution plan allows plaintiffs who entered those 37,500
agreements to keep the goods, even those goods RAC designated for return, without
making further payments. RAC claims this awards such plaintiffs an improper windfall.
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Citing Burney v. THORN Americas, Inc., 944 F. Supp. 762 (E.D. Wis. 1996), RAC
urges this Court to redefine the plaintiff class to exclude such plaintiffs, whom RAC
calls "windfall plaintiffs."
Reviewing this legal issue de novo, we find that the District Court's order is
consistent with Minnesota usury law, which permits a victim of usury to retain goods
purchased through a usurious contract without paying full value for them. Since 1877,
the Minnesota usury statute has provided two remedies for victims of usury: recovery
of all interest paid pursuant to Minnesota Statutes § 334.02; and a declaration that the
usurious contract is canceled as void pursuant to §§ 334.03 and 334.05. See Barton
v. Moore, 558 N.W.2d 746, 750-51 (Minn. 1997). Minnesota courts have long stated
that, when a victim of usury cancels a usurious contract, the victim does not need to
compensate the usurer for the goods obtained under the usurious contract as a condition
for receiving cancellation. In Trauernicht v. Kingston, 195 N.W. 278 (Minn. 1923), the
Minnesota Supreme Court stated, "The general rule over the country is that a borrower
on usury when he comes to a court of equity asking affirmative relief by way of the
cancellation of an obligation . . . must restore the money actually received. . . . Our
own rule, often announced, is that restoration need not be made." Id. at 279. The
Minnesota Supreme Court determined that the Minnesota General Usury Statute
requires this result. See id.
Trauernicht's interpretation of the Minnesota usury statute remains valid.
See First Fed. Sav. & Loan Ass'n v. Guildner, 295 N.W.2d 501, 503 (Minn. 1980)
(citing Trauernicht for the principle that a "plaintiff suing for cancellation of [a]
usurious loan need not return the money actually received"); see also In re Estate of
Fauskee, 497 N.W.2d 324, 328 (Minn. Ct. App. 1993) ("If a loan is usurious, it is
unenforceable and the lender must forfeit interest and principal payments."). Under
Minnesota law, therefore, if a seller commits usury when selling goods, the buyer may
keep the goods purchased without paying the seller the full value of the goods. The
buyer also may cancel the contract pursuant to §§ 334.03 and 334.05 and demand that
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the usurious seller repay all interest collected as required by § 334.02. The District
Court's distribution plan grants the so-called windfall plaintiffs nothing more than that
specified by Minnesota law. This Court has no reason to redefine the plaintiff class as
RAC requests.
The second aspect of the District Court's damage distribution that RAC
challenges is the provisions that force RAC to repay principal and interest to plaintiffs
in the first and third groups. Relying on Rathbun v. W. T. Grant Co., 219 N.W.2d 641
(Minn. 1974), and its progeny, RAC argues that Minnesota law allows victims of usury
to recover interest only. In Rathbun, a class-action lawsuit involving usurious retail
sales installment contracts, the Minnesota Supreme Court determined "that the recovery
of both interest and principal provide[d] a remedy too harsh under the circumstances."
219 N.W.2d at 653. Therefore, the Minnesota Supreme Court permitted the plaintiffs
to recover interest only. See id. RAC claims that Rathbun provides a bright-line rule
for Minnesota usury lawsuits, or at the least for usury class-action lawsuits similar to
Rathbun and the present case, that limits a usury victim's recovery to interest only. We
disagree.
As we have already discussed, the Minnesota General Usury Statute grants usury
victims two remedies: return of all interest paid and cancellation of the contract as void.
See Barton, 558 N.W.2d at 750. When a usurious loan is canceled, "the one guilty of
usurious exaction must bear the legal consequences flowing from such violation. As
such he must lose not only the interest on the money risked, but also the principal,
including as well all security given to secure performance." Midland Loan Fin. Co. v.
Lorentz, 296 N.W. 911, 915 (Minn. 1941); accord United Realty Trust v. Property
Dev. & Research Co., 269 N.W.2d 737, 743 n.12 (Minn. 1978); Fauskee, 497 N.W.2d
at 328. The distribution plan, therefore, correctly enforces Minnesota law when it
compels RAC to forfeit and repay all principal and interest collected on the usurious
loans.
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Rathbun and its progeny do not create a bright-line rule to the contrary. Rather,
Rathbun and its progeny indicate that in some circumstances the forfeiture of both
principal and interest may punish the usurer too harshly. See Rathbun, 219 N.W.2d at
653 (stating "that the recovery of both interest and principal provides a remedy too
harsh under the circumstances" (emphasis added)); Katz & Lange, Ltd. v. Beugen, 356
N.W.2d 733, 735 (Minn. Ct. App. 1984) ("Although the interest rate . . . was usurious,
[the] counterclaim seeking to have the entire underlying debt declared void is too harsh
under the circumstances. Forfeiture of all the charges is a sufficient remedy."
(emphasis added) (citation omitted)); Kudzia v. Wiese, No. C7-93-1906, 1994 WL
233599 (Minn. Ct. App. May 31, 1994) (unpublished) (citing Rathbun and Beugen for
the proposition that "[u]nder some circumstances . . . forfeiture of the interest alone is
the proper remedy for usury because forfeiture of both the principal and interest would
be too harsh a remedy" (emphasis added)).
This case does not involve circumstances in which the forfeiture of principal and
interest constitutes too harsh a remedy. The Order for Judgment permits a plaintiff to
recover both principal and interest only when RAC failed to designate the plaintiff's
goods for return or when the plaintiff returned goods RAC designated for return. In
these instances, the Order for Judgment essentially rescinds the original contract: RAC
has to repay both principal and interest only when it either recovers the leased goods
or declines to recover those goods, apparently because the goods have little residual
value. Rescission is a common remedy that does not seem too harsh, nor does RAC
argue that it is. Furthermore, Rathbun and its progeny do not involve rescission cases.
Concluding the distribution plan's awarding of principal and interest to plaintiffs in the
first and third groups is permitted by Minnesota law and not too harsh considering the
circumstances of this case, we affirm the District Court on this matter.
IV.
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RAC also claims that the District Court erred when it granted the plaintiff class
a retrospective remedy based on Miller v. Colortyme, Inc., 518 N.W.2d 544 (Minn.
1994). In Minnesota, "[t]he general rule is that . . . [a] decision is to be given
retroactive effect." Hoff v. Kempton, 317 N.W.2d 361, 363 (Minn. 1982). But
Minnesota courts recognize that sometimes retroactive application of a judicial decision
is inappropriate. To determine when a legal principle should be applied prospectively
only, Minnesota courts employ a three-factor standard the United States Supreme Court
described in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). The three factors to
consider are: (1) whether the decision overrules clear precedent or resolves an issue of
first impression in a manner "not clearly foreshadowed"; (2) whether, considering the
history, purpose, and effect of the legal principal at issue, retroactive application will
retard, not further, that principle; and (3) whether the inequities that would result from
retroactive application provide an ample basis for applying the legal rule prospectively
only. See Hoff, 317 N.W.2d at 363 (quoting Chevron Oil, 404 U.S. at 106-07); see
also Holmberg v. Holmberg, 588 N.W.2d 720, 726 (Minn. 1999).
This Court already considered the Chevron Oil factors and determined that
retroactive application of the Miller v. Colortyme decision is appropriate. See Fogie,
95 F.3d at 651. RAC argues that our decision in Fogie does not foreclose its argument
that a retrospective remedy is inappropriate because the United States Supreme Court
distinguishes between retroactive application of a rule and the awarding of a
retrospective remedy based upon the rule, and recognizes that sometimes retroactive-
application and retrospective-remediation issues should be considered independently.
See Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 754-59 (1995) (summarizing
four instances when the Supreme Court observed this application-remediation
distinction). Without examining the Reynoldsville Casket decision further, RAC argues
this case is one in which this Court should consider the retrospective-remediation issue
separately. RAC believes that, should we engage in independent retroactivity analysis
of the remediation issue and use the Chevron Oil factors as directed by Hoff, we will
conclude that the District Court erred in granting a retrospective remedy. RAC makes
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such claims even though the Minnesota Supreme Court declined to apply the Miller v.
Colortyme decision prospectively only. See Miller v. Colortyme, No. C2-92-2595, slip
op. at 1 (Minn. Aug. 2, 1994) (Order denying petition for clarification).
In raising its retrospective-remediation argument, RAC bids us to make three
substantial analytical leaps. First, there is no precedent indicating that Minnesota
courts would make the application-remediation distinction the Supreme Court
recognized in Reynoldsville Casket. Second, the United States Supreme Court, while
recognizing the application-remediation distinction, has largely superseded Chevron
Oil with a test under which we would be compelled to apply Miller v.
Colortyme retroactively.7 Thus, while encouraging us to employ a distinction not
previously recognized by any Minnesota court, RAC urges us to use a Minnesota
standard that would not be used in federal courts, the courts that have recognized the
distinction. Third, RAC has not attempted to prove that, even if Minnesota courts
would distinguish between retroactive application and retrospective remedy, the present
case is one in which retroactive application and retrospective remedy should be
7
While Reynoldsville Casket states that sometimes retrospective remediation
should be considered independently from retroactive application and provides instances
of when such independent consideration was appropriate, the Supreme Court in
Reynoldsville Casket does not provide a test a court should use when evaluating
whether a retrospective remedy is appropriate. The Supreme Court, however, largely
superseded Chevron Oil when, in Harper v. Virginia Department of Taxation, 509 U.S.
86, 96-97 (1993), it enunciated a new standard for assessing when a legal principle
should be applied retroactively. Under this new standard, "[w]hen [the Supreme] Court
applies a rule of federal law to the parties before it, that rule is the controlling
interpretation of federal law and must be given full retroactive effect in all cases still
open on direct review and as to all events." Id. at 97 If this Court applied the
Harper standard to the present case, the Minnesota Supreme Court's decision to apply
Miller v. Colortyme to the parties before it would seem to compel us also to apply
Miller v. Colortyme retroactively in this case.
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considered separately. Nevertheless, RAC urges us to engage in a separate remediation
analysis.
We do not explore these three analytical leaps, however, because even if we
resolved each one in RAC's favor we would still conclude that the District Court did
not err when it awarded a retrospective remedy. Applying the three-factor Chevron
Oil standard to consider the propriety of awarding a retrospective remedy, we would
first recognize that Miller v. Colortyme did not overturn a prior decision nor did it
announce a legal principle not clearly foreshadowed in Minnesota law. Rather, Miller
v. Colortyme "simply stated a reasonable and correct interpretation of the law which
differs from the erroneous view RAC had chosen to follow." Fogie, 95 F.3d at 651.
According to the Minnesota Supreme Court in Miller v. Colortyme, this interpretation
flows from the only conceivable reason the Minnesota legislature amended the CCSA
in 1981--because it wanted the CCSA to cover rent-to-own agreements. See Miller v.
Colortyme, 518 N.W.2d at 548.
Second, awarding a retrospective remedy would further, not retard, the principles
of the Minnesota usury statute as reflected in its purpose, history, and effect. The
Minnesota General Usury Statute seeks "to protect the weak and necessitous from
being taken advantage of by lenders who can unilaterally establish the terms of the loan
transaction." Trapp v. Hancuh, 530 N.W.2d 879, 884 (Minn. Ct. App. 1995). RAC
charged interest on the rent-to-own agreements ranging from 46 to 746 percent,
see Fogie, 95 F.3d at 652, approximately six to ninety-three times greater than the eight
percent permitted under Minnesota law. See Minn. Stat. § 334.01 (1998). The award
of a retrospective remedy for such conduct, while perhaps harsh, would further the
statutory purpose of discouraging business entities from charging excessive interest
rates on loans to consumers. Moreover, this remedy comports with the history and
traditional effects of the Minnesota usury statute, under which courts have held that a
victim may recover the principal and interest paid and security given without even
paying the usurer the principal borrowed. See supra Part III.
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Third, we reject RAC's arguments that the inequities that would result from
awarding a retrospective remedy provide a compelling basis for us to grant only
prospective relief. RAC complains that a retrospective remedy will unjustly
compensate plaintiffs because it will allow them to escape paying for RAC's overhead
expenses and for use of and damage to the leased goods. RAC ignores that it charged
interest rates far in excess of the legal limits. RAC also ignores that the Order for
Judgment allows RAC to keep some income from its usurious transactions: profits
included in the retail price of designated goods the second group of plaintiffs had paid
for and chose to keep and income RAC made using or investing the plaintiffs' payments
of principal and interest before the plaintiffs filed suit. The equities of this case do not
provide a sufficient basis for us to conclude that only prospective relief is appropriate.
None of the three Chevron Oil factors weighs in favor of denying the plaintiffs
a retrospective remedy. Furthermore, as we have already stated, the Minnesota
Supreme Court has refused to amend Miller v. Colortyme to make it apply only
prospectively. See Miller v. Colortyme, No. C2-92-2595, slip op. at 1 (Minn. Aug. 2,
1994) (Order denying petition for clarification). Reassured by the Minnesota Supreme
Court's refusal to amend Miller v. Colortyme that our determination correctly interprets
Minnesota law, we affirm the District Court's grant of a retrospective remedy.
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V.
RAC also challenges the cy pres fund that the judgment of the District Court
creates for unclaimed damages. According to the Order for Judgment, if any monies
remain "[a]fter the Unlocated Members Subfund is closed . . . , the pay over of waived
principal refunds to [THORN] is completed . . . , all disputes are resolved . . . [,] all
checks issued on the Common Fund have either expired or been cashed," and certain
other taxes, fees, and expenses are paid, they are to be placed in a cy pres fund. Order
for Judgment at 12. The District Court directs class counsel at that time to provide an
accounting to the District Court and "petition the [District] Court for direction on
distribution of the Cy Pres Fund." Id. at 13.
RAC claims that the creation of a cy pres fund is unprecedented and
inappropriate when, as in this case, the District Court formulates an individualized
remedy tied to specific transactions, and all class members are known and will receive
full compensation if they come forward. RAC argues that undistributed funds should
be returned so that RAC can compensate class members who seek payment after the
common fund is closed but still within the time for enforcing a judgment set forth by
Minnesota law.
Several questions regarding the cy pres fund remain unanswered. Most
importantly, we do not yet know whether any undistributed monies will remain. For
all that appears, at the end of the day there may be nothing left to go into the fund.
Moreover, the District Court has not decided how any such funds will be distributed
or to whom. In the absence of information regarding the existence and amount of
residual funds, the District Court acted prematurely in ordering the creation of a cy pres
fund. Accordingly, we vacate the portion of the District Court's order that creates the
cy pres fund for unclaimed monies without prejudicing the District Court's ability to
consider the creation of a cy pres fund if in fact there are unclaimed monies left after
the plan for the payout of damages has been fully carried out. Cf. Hennenfent v. Mid
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Dakota Clinic, P.C., 164 F.3d 419, 420 (8th Cir. 1998) (vacating without prejudice a
district court's determination that an ADA plaintiff could not perform an essential
function of his job because the plaintiff might still elect to undergo the medical testing
necessary to make that determination).
VI.
Finally, RAC argues the District Court mistakenly granted the plaintiffs double
recovery when it ordered RAC to return funds from an escrow account to the plaintiffs.
RAC claims that the $1.6 million in escrow funds were already included when the
parties stipulated that RAC had received $27.9 million from the plaintiff class in
transactions governed by the rent-to-own agreements. The District Court found to the
contrary, ordering RAC to return the $1.6 million in escrow funds and to pay damages
based on the $27.9 million in receipts. We review this factual determination for clear
error. See Chicago Title Ins. Co. v. FDIC, 172 F.3d 601, 604 (8th Cir. 1999).
To determine whether the escrow funds were included in the damage stipulation,
we trace the history of the two amounts. Initially, the District Court did not establish
an escrow account; rather, it ordered RAC to "cease making any further collections or
receiving any further payments of any kind from the Plaintiff Class on the rental
purchase agreements." Fogie v. Rent-A-Center, Inc., No. 3-94-359, slip op. at 16 (D.
Minn. Sept. 28, 1995) (Memorandum Opinion and Order). RAC later requested that
the District Court stay this requirement, claiming that, because the District Court's order
prevented RAC from contacting the class members, RAC's return of payments without
explanation would create unnecessary confusion. The District Court agreed with RAC
that returning payments would create unnecessary confusion but declined to grant a
stay. Instead, the court ordered RAC to place all payments received in a "separate,
interest bearing account" until the plaintiffs were notified regarding the outcome of this
litigation. See Fogie v. THORN Americas, Inc., No. 3-94-359, slip op. at 7 (D. Minn.
Feb. 19, 1997) (Memorandum Opinion and Order).
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The parties subsequently stipulated that the total amount of sales subject to
rescission--that is, the amount "reflect[ing] receipts on rental purchase contracts issued
by [THORN] from August 1, 1990, through November 13, 1996"--totaled
approximately $27.9 million. See Order for Judgment at 2. The District Court used
this amount to calculate interest, made other adjustments, and ordered RAC to pay
approximately $29.9 million in damages. The District Court also ordered RAC to
return the $1.6 million in payments that had been placed in escrow.
After reviewing the District Court's orders regarding the treatment of payments
received after litigation commenced, the creation of the escrow account, and the Order
for Judgment, we do not believe the District Court clearly erred when it determined that
the escrow funds were not included in the total damage stipulation. The damage
stipulation provided the total amount of RAC's actual receipts. Because the funds
placed in escrow were never received by RAC, the District Court did not clearly err
when it determined the escrow funds were not included in the damage stipulation.
Therefore, we uphold the District Court's decision to calculate damages based on the
$27.9 million stipulation and also order RAC to return the $1.6 million in escrow funds.
VII.
For the reasons stated above, the judgment of the District Court is vacated
without prejudice insofar as it creates a cy pres fund. In all other respects, the
judgment of the District Court is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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