RICO Law Blog : RICO Lawyer & Attorney : Thomas Walker : Cosho Humphrey Law Firm : RICO Act, Federal and State Racketeering Litigation, Boise Idaho

United States Attorney Benjamin B. Wagner announced on February 18, 2010 that a federal grand jury has returned a seven-count indictment charging FREDERICK SCOTT SALYER, 54, of Pebble Beach, with violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), in connection with his direction of various schemes to defraud SK Foods’ corporate customers through bribery and food misbranding and adulteration, and with wire fraud and obstruction of justice.

Additionally, SK Foods former Vice President for Operations STEVEN JAMES KING, 46, of Visalia, was charged this morning with one count of food adulteration and misbranding. He has agreed to plead guilty and to cooperate in the ongoing investigation and prosecution.

These cases are the product of a joint and extensive investigation by the FBI, the IRS-Criminal Investigation, the Food and Drug Administration Office of Criminal Investigations, and the United States Department of Justice’s Antitrust Division.

According to Assistant United States Attorney Sean C. Flynn, who is prosecuting the case with Barbara Nelson and Richard Cohen of the San Francisco Field Office of the Antitrust Division, between 1990 and 2008, SALYER was the owner and served as chief executive officer of SK Foods LP, a grower, processor, and distributor of tomato products and other food products for sale nationwide. SK Foods declared bankruptcy in May 2009, and its assets were purchased by the Singapore-based Olam International.

According to the indictment, SK Foods and its related corporate entities constituted a racketeering enterprise, an organization that SALYER directed, and other SK Foods leaders and employees helped to further through a variety of illicit activities. It is alleged that over a period of 10 years, SALYER orchestrated a number of wide-ranging schemes whereby SK Foods regularly paid bribes to the purchasing managers of many of its customers such as Kraft Foods Inc., Frito-Lay Inc., B&G Foods Inc., and Safeway Inc. to ensure that those customers purchased processed tomato products from SK Foods rather than from its competitors, and that they purchased the product from SK Foods at elevated, above-market prices. The indictment alleges that some bribes were made in order to wrongfully obtain its competitor’s proprietary bid information.

As the racketeering enterprise’s leader and primary decision maker, SALYER is also alleged to have directed a widespread practice of selling and shipping processed tomato product that did not meet contractual specifications, contained mold levels in excess of the thresholds established by the FDA and was thus unsaleable domestically. The indictment alleges that at SALYER’s direction, various individuals at SK Foods falsified both internal and customer-bound documentation to make the product appear as if it were legal and contractually compliant when, in fact, it was not.

SALYER is also charged with obstructing justice by ordering the alteration and falsification of certain SK Foods’ corporate records after the government’s investigation of the company became known. Specifically, the indictment alleges that two weeks after former SK Foods sales broker and Director Randall Lee Rahal pleaded guilty to racketeering, money laundering, and antitrust charges in December 2008, SALYER ordered certain individuals to alter the minutes of a December 14, 2007, SK Foods Board of Directors meeting to eliminate any reference to Rahal as a director of the company.

On February 4, 2010, FBI Special Agents arrested SALYER at Kennedy International Airport in New York City, based on a criminal complaint charging him with 20 counts of mail and wire fraud. According to that complaint, SALYER left the United States in October 2009, following the guilty pleas of several employees of SK Foods and some of its customers, intending to relocate abroad permanently. SALYER had instructed a subordinate to sell many of SALYER’s belongings and had transferred millions of dollars from bank accounts formerly associated with SK Foods entities to bank accounts in the Carribean and Liechtenstein. The complaint alleged that SALYER spoke with a former SK Foods employee about obtaining permanent residence status in Uruguay, Paraguay, Andorra, and France because he believed he would not be extradited from these countries. SALYER had booked a flight back to Europe the next day, February 5, 2010. Instead, SALYER made his initial appearance before U.S. Magistrate Judge Steven Gold in Brooklyn, N.Y. that afternoon. Judge Gold denied SALYER bail, stating that SALYER’s efforts constituted one of the “most elaborate schemes to flee he had ever seen.”

According to the charges filed against KING, between 1994 and 2009, he served in a variety of positions, most recently as SK Foods’ Vice President for Operations. In that role, he was responsible for overseeing and managing SK Foods production facilities in Williams and Lemoore. He also assisted in managing SK Foods’ inventory of processed tomato and other food products, and arranging for the shipment of those food products to SK Foods customers. KING has agreed to plead guilty to falsifying and directing other SK Foods employees to falsify various SK Foods’ quality control documents and to ship adulterated and misbranded tomato product to various SK Foods customers. He has admitted that his actions were conducted at the express instruction and direction of SALYER, and with the assistance of other senior leaders and directors of SK Foods, and were intended to make it appear to customers as if particular shipments of processed tomato product were compliant with USDA and FDA standards, and with customer specifications, when in fact they were not. KING is expected to appear in U.S. District Court in Sacramento in the near future to enter his guilty plea.

The current charges against SALYER and KING are the latest in the ongoing investigation of conduct at SK Foods. See attached chart for details. That investigation has not yet been concluded.

The maximum statutory penalty on racketeering charges against SALYER is 20 years in prison, a fine of up to $250,000, and the forfeiture of any interest, property or proceeds acquired or maintained as a result of the racketeering activity. The wire fraud and obstruction charges against SALYER also are punishable by up to 20 years in prison. The food misbranding and adulteration charges against KING carry a three-year maximum sentence. The actual sentences, however, will be determined at the discretion of the court after consideration of any applicable statutory sentencing factors and the Federal Sentencing Guidelines, which take into account a number of variables.

The charges are only allegations and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

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The Legal Intelligencer (1/27, Duffy) reports that a federal judge has refused to dismiss a trio of class action consumer RICO suits that accuse the companies of engaging in a pervasive pattern of overcharging for title insurance by systematically ignoring entitlement to statutory discounts.

Although title insurers have been battling a wave of consumer litigation in recent years, the three decisions by U.S. District Judge Joel H. Slomsky mark the first time that a court has green-lighted RICO claims.

Defense lawyers had urged Slomsky to dismiss the RICO claims, arguing that the plaintiffs failed to plead a proper RICO enterprise since an insurer and its agents cannot be considered legally "distinct."

Slomsky disagreed, saying "plaintiffs have satisfied the minimum 'person' and 'enterprise' distinctiveness requirement because the combination of Commonwealth Land and the title agents constitute a single 'enterprise' separate and distinct from the 'person' of defendant Commonwealth Land and this combination is permissible under RICO jurisprudence."

In the suits, homeowners claim they were overcharged for title insurance when they purchased or refinanced because they were never told that they qualified for a discounted premium.

Under Pennsylvania law, title insurance rates are governed by a statute that calls for a 10 percent "reissue rate" discount whenever a property owner purchases title insurance within 10 years of obtaining a policy issued on the same property and a 20 percent "refinance rate" discount if the property owner applies for title insurance within three years of obtaining a previous policy.

The plaintiffs lawyers contend that the routine and systematic overcharging of consumers is exactly the sort of conduct the civil RICO statute was designed to address.

"Title insurers and their agents take advantage of consumers' ignorance and trust by (1) deliberately misrepresenting and overstating the amount of money due for title insurance; (2) concealing from consumers that they are being overcharged; and (3) having title agents, acting in their capacity as settlement agents, pay the inflated bills on the consumers' behalf out of the consumers' mortgage loan proceeds -- monies that have been entrusted to the title agents in their capacity as settlement agents," the plaintiffs wrote.

But defense lawyers argued that the RICO claims were riddled with fatal flaws and failed to satisfy the strict requirements imposed by both the U.S. Supreme Court and the 3rd U.S. Circuit Court of Appeals.

In their briefs, the defense teams argued that title insurers have no fiduciary duty to disclose the alleged entitlement to the discounted rate or to inform plaintiffs of the non-disclosure.

Slomsky disagreed, saying, In "light of the complexity of title insurance rates and the expertise of defendant and title agents ... the argument that defendant had no duty to disclose the right to the discounted rate is not persuasive."

Instead, Slomsky found, the insurers and their agents "had the responsibility to charge the correct rate, and disclosure of the correct rate is part and parcel of that responsibility."

But the main thrust of the defense motions was to challenge the plaintiffs' RICO theory by attacking their pleading of an "association-in-fact" enterprise.

The RICO enterprise alleged by the plaintiffs, they argued, does not satisfy the "distinctiveness" requirement of RICO as explained in copious federal case law.

To satisfy the "distinctiveness" requirement under §1962(c), the defense team said, a plaintiff must allege that the RICO "enterprise" is distinct from the defendant "person" alleged to have violated RICO and that the "enterprise" is distinct from the alleged pattern of racketeering activity.

But the plaintiffs lawyers argued that the insurers are the liable "person" and the "enterprise" is an association-in-fact between the insurers and their title agents in Pennsylvania.

The title agents are subject to the insurers' control and take a percentage of the premiums collected as their remuneration for their services.

But defense lawyers insisted that since the insurers acted only through their agents, the "person" and "enterprise" are one and the same and therefore fail to satisfy RICO's distinctiveness requirement.

Slomsky sided with the plaintiffs, finding that their allegations are valid, at least in theory, because "these title agents are independent and distinct entities and individuals."

The title agents "are not employees" of the insurers, Slomsky noted, "but rather they are non-exclusive agents who work with different title insurance companies."

Although title agents have an "agency agreement" with the insurer, Slomsky said, "they are still separate, independent entities who do not function as subsidiaries or employees."

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The Supreme Court has ruled against New York City in its effort to use federal racketeering law to sue Internet cigarette sellers for lost tax revenue.

By a 5-3 vote Monday, the court ended the city’s lawsuit against Hemi Group, a New Mexico-based company that sells cigarettes online.

New York taxes the possession of cigarettes but finds it difficult to collect those taxes from Internet sales. The city says it loses millions of dollars in tax revenues from online sales.

Sellers like Hemi are not required to charge or collect the taxes, but they are supposed to provide information about their customers to states.

New York’s lawsuit under the Racketeer Influenced and Corrupt Organizations Act accused Hemi of fraud for failing to provide the customer information.

The court said Monday that the city cannot use the racketeering law to collect tobacco taxes from Hemi.

Chief Justice John Roberts and Justices Samuel Alito, Ruth Bader Ginsburg, Antonin Scalia and Clarence Thomas formed the majority.

Justice Sonia Sotomayor did not take part in the case because it came from the federal appeals court in New York on which she served before her elevation to the high court.

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Investors in resort properties of high-end projects filed a lawsuit in U.S. District Court in Boise, Idaho against investment bank Credit Suisse, accusing the financial giant of deliberately engineering the failure of at least four major resort projects so that it could acquire them on the cheap.   

The suit alleges a host of illegal acts by Credit Suisse and the real estate firm Cushman & Wakefield, including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), fraud, negligence and breach of fiduciary duty, and seeks $24 billion in damages.

The lawsuit alleges that Credit Suisse’s resort loan program, which eventually included more than a dozen properties and billions of dollars in loans, was a deliberate scheme to burden the resorts with debts they could not repay so that the bank could gain ownership through foreclosure or bankruptcy. While the suit currently only includes the four projects, including Tamarack Resort in Donnelley, Idaho, it also suggests that other resorts that took loans from Credit Suisse - including Promontory in Utah and Turtle Bay in Hawaii - could eventually be part of the litigation as well.

Credit Suisse spokesman Duncan King said: “We believe the suit to be without merit and will defend ourselves vigorously.”

The lawsuit focuses on the use of an appraisal method that is not compliant with U.S. banking regulations. The co-called “total net value” appraisals, which essentially took the total estimated market value of all sale-able real estate but did not apply the normal “discount rate” that factors in market fluctuations and how quickly properties might sell, yielded a much higher value than a typical appraisal and was used to support very large loans. At Yellowstone Club the loans totaled $375 million; at Lake Las Vegas it was $540 million; at Tamarack Resort it was $250 million. Credit Suisse set up an entity in the Cayman Islands specifically to facilitate the loans, which could not be marketed by or to U.S. banks because they relied on the non-compliant appraisals.

Under the scenario outlined in the lawsuit, the resort owners, who were explicitly permitted to take hundreds of millions of dollars in loan proceeds as “dividends,” were duped by Credit Suisse into taking the money. The suit relies heavily on a Yellowstone Club case ruling by U.S. Bankruptcy Court Judge Ralph B. Kirscher, who called the Credit Suisse loan to the club “predatory” and said the behavior of the bank “shocked the conscience of this court.” That ruling led to a settlement in which the decision was vacated and Credit Suisse agreed to a sale of the property to CrossHarbor Capital Partners.

Credit Suisse now controls the “liquidating trust” in the Yellowstone Club case, and contends that it is Tim Blixseth, the developer, who acted badly in transferring so much money out of the club and that he should be required to pay the money back.

Lake Las Vegas remains mired in a highly complex bankruptcy proceeding, with its golf courses and many other facilities closed. Tamarack is also closed, and a foreclosure trial is scheduled for next month. Yellowstone Club and Promontory have emerged from bankruptcy and are now operating normally. The institutional investors who bought the debt from Credit Suisse lost about 70% of their money on Yellowstone Club, and virtually all their money on Promontory. Tamarack and Lake Las Vegas are likely to yield little if any payback for the debt-holders.

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On December 30, 2009, a federal judge dismissed criminal charges against five Blackwater guards involved in a shootout in Baghdad in September 2007 during which 14 Iraqis were killed.

US District Court Judge Ricardo Urbina ruled that federal prosecutors improperly used statements the men gave to State Department investigators under a promise of immunity to secure indictments against them.

“In their zeal to bring charges…in this case, the prosecutors and investigators aggressively sought out statements the defendants had been compelled to make to government investigators in the immediate aftermath of the shooting and in the subsequent investigation,” Urbina wrote in a 90-page opinion.

“In so doing, the government’s trial team repeatedly disregarded the warnings of experienced, senior prosecutors, assigned to the case specifically to advise the trial team on [legal] issues, that this course of action threatened the viability of the prosecution. The government used the defendants’ compelled statements to guide its charging decisions, to formulate its theory of the case, to develop investigatory leads, and ultimately to obtain the indictment[s] in the case.”

At the time of the shooting, Blackwater had a contract to provide security to the State Department in Iraq.

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A federal court judge in Oregon dismissed an unusually pled case on October 9, 2009.  In Arunga v. ACLU et al., 2009 WL 3274784  (D.Or.), plaintiffs James Aggrey-Kweggyirr Arunga and Doreen H. Lee sued 100 defendants asserting vague wrongdoings, including RICO violations. In a complaint over 90 pages long, plaintiffs' allege the following: “Nihilism;” “Racketeering;” “Bivens;” “Porno Finagling;” “Obstruction of Justice;” “Finagling Panjandrum at Law;” “Hired Hate Criminal and Hired Hit Person Obstructing Justice;” “Financial Finagler;” “SPL Hired Corrupt-Finagler Obstructing Justice;” “Concurrent-Consecutive Finagling Tortfeasors;” “SPL Political Finagler Obstructing Justice;” “Racketeering and Extortion Finagler Obstructing Justice;” and “False Business Practices.” Plaintiffs also note various random Articles and Sections of the United States Constitution, along with various United States Code provisions. Finally, plaintiffs seem to request of the court, a “Question of Law Or Fact Raised for A Class Action in Reverse.” Complaint. Specifically, plaintiffs asked: Whether a “State of Ochlocracy” composite a numerous Class of 100-Defendants that represent nationally, organized Perpetrators; Civil (Rights) Violators; and Tortfeasors can be incorporated, established, and admitted as “a New State” into the Union within the jurisdiction, junction and or parts of other States of the Union to: (1) Operate Criminal Businesses; (2) Conduct Civil (Rights) Violations; and (3) Practice concurrent-consecutive and joint Constitutional Torts Against plaintiffs.

The Arunga complaint is certainly one of the most unusual I have ever seen.

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Greg Webb posted on InjuryBoard.com that a federal judge in Los Angeles has refused to seal a wrongful termination lawsuit filed by Dimitrios Biller, a former in-house attorney for Toyota Motor Sales USA Inc. Biller claims Toyota hid and destroyed evidence in many rollover lawsuits. While Toyota argues the suit violates the confidentiality agreement in Biller’s severance package and will cause the company to suffer more harm if the complaint is not sealed, the judge ruled it would be pointless to seal the complaint since information regarding the lawsuit is already on the Internet. Biller has also filed a wrongful termination suit against the Los Angeles district attorney’s office, where he worked after Toyota, claiming his termination here violated the American’s With Disabilities Act because of diagnosed dyslexia and mental conditions. Though Toyota was not part of this lawsuit, they have been attempting to seal documents from this case as well, claiming Biller divulged confidential information about the automaker that is protected by attorney-client privilege.

From 2003 until his resignation in 2007, Biller was national managing counsel in the legal services group in charge of Toyota's rollover program. His lawsuit alleges Toyota violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), causing him to be wrongfully terminated and intentionally inflicted emotional distress; Biller claims he suffered a mental breakdown and was forced to resign from his position after Toyota attempted to stop his efforts to turn over missing evidence. In response, he received a $3.7 million in severance. Not only did he claim Toyota committed criminal acts in rollover cases, but Biller also claims the automaker engaged in a conspiracy to hide and destroy evidence that he was obligated to turn over to the plaintiff’s attorney. Biller alleges his boss told him not to keep some electronic discovery materials in at least three hundred rollover cases, which was "tantamount to the destruction of evidence and/or concealing evidence, either of which would have amounted to obstruction of justice." Following a 2006 performance review, Biller wrote a twenty-three page memo that outlined Toyota’s "dysfunctional" product liability group and accused his boss of causing the company to break the law. Biller claims this memo, which was signed by his boss, was destroyed.

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In a letter to Attorney General Eric Holder, Senator David Vitter argues that ACORN's alleged misdeeds warrant a Racketeer Influenced and Corrupt Organizations (RICO) investigation into its business practices. A probe of that magnitude — potentially the most aggressive investigation requested by any ACORN critic to date — would permit investigators exceptional leverage in rooting out any criminal wrongdoing.

"The recent reports and video footage of ACORN workers from various cities and states giving 'how-to' instructions on carrying out crimes, ranging from violating numerous immigration laws to tax fraud, warrants an immediate RICO investigation into ACORN," Vitter said in his letter.

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The AP (8/10) reported that Randall Sutton, president and CFO of defunct Missouri funeral contract company National Prearranged Services Inc., "is facing federal fraud charges in an alleged scheme to loot hundreds of millions of dollars from customers' prepaid funeral accounts." Sutton "is among 45 defendants named in a civil racketeering, fraud and fiduciary negligence lawsuit filed Thursday in federal court in St. Louis against officials of National Prearranged Services, its insurance affiliates and various banks, law firms, auditors and investment advisers connected to the consortium of companies.

The lawsuit "was brought by Donna Garrett, the deputy receiver appointed to administer the companies after their failure, and by groups representing the insurance guarantee funds of about three dozen states. It seeks an unspecified amount of damages, which plaintiffs attorneys said Monday could surpass $1 billion."

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