Third Circuit Affirms Treble Damages Award to Plaintiffs in Civil RICO Involving Bank Fraud Scheme

Liberty Bell Bank v. Rogers, 2018 WL 834197 (3rd Cir. Feb. 13, 2018)

The Third Circuit affirmed the granting of Appellee Liberty Bell Bank’s motion for summary judgment and the awarding of more than ten million dollars in damages.

In 2013, Liberty Bell Bank (LBB) filed a complaint against Rogers and various entities he owned and controlled (LGR), alleging violations of the federal RICO and the New Jersey RICO act. The complaint alleged that defendants developed a scheme through which they fraudulently obtained loans from LBB, and further defrauded it by making payments on the loans using a check kiting scheme.

The District Court had granted partial summary judgment to LBB on its federal RICO and breach of contract claims, holding that LGR and Rogers were liable for damages in connection with the check kiting scheme, and that these damages were subject to trebling under the federal RICO statute ($10,632,186.57 in damages for the RICO claim, plus attorneys’ fees and costs).

Rogers neglected to file a responsive statement of material facts, and thus the District Court was entitled to deem the statement of facts as admitted, i.e., Rogers unlawfully entered into multiple leases that were assigned to LBB as collateral for loans which did not exist either because the end user cancelled the lease or the equipment was never purchased. Also, Rogers established checking accounts at LBB, Susquehanna, and Roma on behalf of the LGR Entities which enabled Rogers to access funds on deposited checks before the funds were paid by the bank on which they were drawn. On April 11, 2013, Roma Bank, suspicious that defendants were engaged in a check kiting scheme, put a block on the LGR accounts. Despite being notified of the block, Rogers did not alert LBB. The next day, LBB received checks back from Roma that were unpaid. LBB and Susquehanna subsequently put a hold on the LGR Entities’ accounts. It was then discovered that defendants had “utilize[d] funds and replace[d] funds with ultimately uncollectible checks in a circular fashion” among the three banks. In the end, after LBB applied a series of chargebacks, the LGR accounts were overdrawn by over $2 million. Defendants had also overdrawn their accounts at Susquehanna Bank by $2,890,000, and at Roma Bank by $2,100,000.

The Federal RICO Claim

The District Court determined that Rogers and LGR committed the predicate crime of bank fraud, 18 U.S.C. § 1344, which makes it an offense to execute, or attempt to execute, a scheme or artifice (1) to defraud a financial institution or (2) to obtain money from it by false or fraudulent means. The District Court found that, to avoid defaulting on LGR’s bank loans, Rogers executed a check kiting scheme, defrauding LBB, Roma Bank, and Susquehanna Bank out of millions of dollars. A check kiting scheme violates the bank fraud statute.*3. The LGR Entities made more than $120 million of deposits and withdrawals across these bank accounts during the month of March 2013 alone, despite having an approximate average annual revenue of $7 million to $10 million.

Thus, the summary judgment record supports the conclusion that Rogers acted with knowledge and specific intent to use the check kiting scheme to defraud LBB. Therefore, that there is no genuine factual dispute that Rogers’ actions amounted to racketeering activity as Rogers had deposited multiple checks as part of the scheme and thus committed separate violations of the bank fraud statute. The Court thus held that each check deposit in a kiting scheme constituted a separate execution of the scheme to defraud the bank.

The Court also found continuity “is a temporal concept” but the district court made no definitive ruling on this temporal element of the claim, but the record showed the Defendant engaged in an overall scheme that extended from at least 2010 to 2013, a period of time sufficient to satisfy the continuity requirement of RICO. See Tabas v. Tabas, 47 F.3d 1280, 1294 (3d Cir. 1995) (holding scheme lasting over three years is “substantial period of time” for purposes of establishing pattern).

Finally, the Court found LBB sustained financial losses totaling $3,544,062.19 as a direct result of Rogers’ racketeering activity, and thus damages were properly awarded on that claim in the amount of $10,632,186.57 (trebled).

      Ed Note:   This case shows that when the Defendant engages in clear criminal activity, i.e., bank fraud though check-kiting, for a substantial period of time, with multiple victims, the Plaintiff will be able to show a successful civil RICO, and receive treble damages plus attorneys’ fees and costs.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s