LIBERTY BELL BANK v. ROGERS et al
OPINION. Signed by Judge Noel L. Hillman on 9/22/2015. (dmr)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
LIBERTY BELL BANK,
Civil No. 13-7148 (NLH/KMW)
LUIS G. ROGERS, et al.,
Richard D. Gallucci, Jr., Esq.
Spector Gadon & Rosen, P.C.
1635 Market Street
Philadelphia, Pennsylvania 19103
Counsel for Plaintiff
Luis G. Rogers
123 Colonial Road
Beverly, New Jersey 08010
Defendant Pro Se
Douglas F. Johnson, Esq.
Earp Cohn P.C.
20 Brace Road
Cherry Hill, New Jersey 08034
Counsel for Martin Mellman, Receiver for Defendants
Lease Group Resources, Inc., LGR Consortium, Inc., LGR
Group, Inc., and University Copy Services
Corinne Samler Brennan, Esq.
Klehr Harrison Harvey Branzburg LLP
457 Haddonfield Road
Cherry Hill, New Jersey 08002
Counsel for Intervenor Susquehanna Bank
David A. Van Grouw, Esq.
Lowenstein Sandler, PC
65 Livingston Avenue
Roseland, New Jersey 07068
Counsel for Intervenor Kyocera Document Solutions
HILLMAN, District Judge:
Presently before the Court is a motion [Doc. No. 165] filed
by Plaintiff, Liberty Bell Bank, for summary judgment pursuant
to Fed. R. Civ. P. 56.
The Court has considered Plaintiff’s
submission, no opposition thereto having been filed, and decides
this matter pursuant to Fed. R. Civ. P. 78.
For the reasons
that follow, Plaintiff’s motion is granted in part and denied in
This action involves a fraudulent scheme orchestrated by
Defendant Luis G. Rogers through various entities that Rogers
controlled, which has caused multi-million dollar losses to
In an amended complaint filed on February 18, 2014,
Plaintiff alleges that Defendants violated the federal Racketeer
Influenced and Corrupt Organizations Act (hereafter, “RICO”) as
well as the New Jersey RICO statute, committed common law fraud
and conversion, and engaged in fraudulent transfers of assets.
Plaintiff also asserts a breach of contract claim against
Defendant Lease Group Resources, Inc. (hereafter, “LGR”), as
well as a breach of guaranty claim against Defendant Rogers.
Upon Plaintiff’s motion, on March 5, 2014 the Court
appointed a Receiver on behalf of one of Rogers’ entities,
Subsequently, the Court entered a revised Order
appointing the Receiver on behalf of LGR, as well as on behalf
of Defendants LGR Group, Inc. (hereafter, “LGR Group”), LGR
Consortium, Inc. (hereafter, “LGR Consortium”), and University
Copy Services (hereafter, collectively the “LGR Entities”).
LGR Entities are controlled and beneficially owned by Rogers.
(Pl.’s Statement of Undisputed Material Facts (hereafter, “Pl.’s
SOF”) ¶ 95.)
Plaintiff now moves for summary judgment on the claims in
the amended complaint.
In response, the Receiver advised the
Court that he “lacks a sufficient factual basis to oppose
Liberty Bell Bank’s Motion for Summary Judgment.”
Martin Mellman, Receiver for Lease Group Resources, Inc. to Mot.
for Summ. J. of Liberty Bell Bank [Doc. No. 175].)
Rogers, who is proceeding pro se, requested a substantial
extension of time to respond to the motion, and although the
Court denied Rogers’ request, it did grant Rogers a short
(Order [Doc. No. 185], Mar. 18, 2015.)
thereafter filed responses to other motions that were pending at
the time, but he has never filed opposition to the motion for
Beginning in 2005, Plaintiff extended over one hundred
secured loans to LGR.
(Pl.’s SOF ¶ 1.)
LGR collected lease
payments from lessees and was supposed to use those lease
payments to repay Plaintiff for the loans.
(Id. ¶ 3.)
loan was supported by a loan package completed by Defendant
Rogers, which documentation included a promissory note, a
business loan agreement, a commercial security agreement, a UCC1 financing statement identifying the equipment, an assignment
from LGR to Plaintiff of all monies due and to become due under
the leases, with a direction to the equipment lessee to pay
Plaintiff directly, the original lease being assigned to
Local Civil Rule 56.1 requires a party moving for summary
judgment to provide a statement of material facts not in
dispute, in separately numbered paragraphs which cite to
documents submitted in support of the motion. L. Civ. R.
56.1(a). The party opposing summary judgment must then provide
a responsive statement of material facts, “addressing each
paragraph of the movant’s statement, indicating agreement or
disagreement and, if not agreed, stating each material fact in
dispute and citing to the affidavits and other documents
submitted in connection with the motion[.]” Id. Pursuant to
the rule, “any material fact not disputed shall be deemed
undisputed for purposes of the summary judgment motion.” Id.
In this case, Plaintiff provided a statement of undisputed
material facts, in compliance with Local Civil Rule 56.1.
Because no party has opposed the motion, these material facts
are deemed undisputed for purposes of the summary judgment
motion and are set forth below. See id.
Plaintiff, and a supporting cost sheet showing equipment prices
equal to the amount of the loan.
(Id. ¶ 4 n.2.)
Typically, a government agency initially entered into a
lease with an equipment manufacturer, and the equipment
manufacturer then assigned the lease to LGR.
in turn, assigned the lease to Plaintiff.
(Id. ¶ 7.)
of lease payments and the security interests in the equipment -which were primarily copy machines -- served as collateral for
(Id. ¶ 6.)
If the end user had entered into a lease
directly with LGR, then LGR would assign that lease to
(Id. ¶ 8.)
Rogers understood that Plaintiff was loaning money on the
basis of the leases that were being assigned, and that Plaintiff
would not have made such loans if the leases were not so
(Pl.’s SOF ¶ 9.)
However, many of the leases that
were purportedly assigned to Plaintiff as collateral for the
loans extended by Plaintiff did not exist.
(Id. ¶ 10.)
admitted that there were times when he took loan proceeds to
fund equipment that was supposed to be subject to collateral
leases, even though the leases were either canceled or taken
(Id. ¶ 11.)
Instead of using the loan proceeds from
Plaintiff to purchase the equipment that was then to be leased
to an end user, Rogers took the money and never had a valid
assignment of the leases.
For example, Rogers and LGR represented to Plaintiff that
Loan #8169 was to finance LGR’s purchase of 143 Savin Models
9033 and ten Savin Models 9060 from Fax Plus, at a cost of
$588,113.40 and $82,806.75, respectively.
(Cert. of Benjamin
Watts [Doc. No. 165-5] (hereafter, “Watts Cert.”) ¶ 3.)
further represented that the equipment would then be leased to
the Defense Intelligence Agency (hereafter, “DIA”), under Lease
LGR provided the lease and the equipment to
Plaintiff as security for the repayment of the loan.
Plaintiff fully funded the loan and paid over $670,000 to LGR in
or about July 2010.
Rogers, however, never paid Fax Plus
$588,113.40 for the 143 Savin Models 9033, and Lease 5508 was
voided to the extent it included the lease of that equipment.
(Id. ¶ 4.)
Fax Plus then financed the purchase and took the
lease payments as security for its purchase, and Plaintiff was
left without any collateral to secure $588,113.40 of Loan #8169.
This information was never conveyed by Rogers to
In addition to this conduct, Rogers also engaged in
wrongdoing by obtaining loans from both Plaintiff and
Susquehanna Bank for the purchase of equipment, and offering the
equipment as collateral to both banks, thereby leaving the banks
with competing claims to the same collateral.
For instance, Plaintiff and Susquehanna Bank each loaned
(See Pl.’s SOF ¶
$1,224,165.29, for a total of $2,448,30.58, to purchase
equipment from Kyocera.
(Id. ¶ 21.)
Rogers then caused LGR to
give the same equipment leases to both Plaintiff and Susquehanna
Bank as collateral for the repayment of the loans.
doing, Rogers obtained twice the value of the equipment he
purchased from Kyocera, and the banks were left to compete over
the interest in the collateral.
pledged to both Plaintiff and Susquehanna Bank certain equipment
purchased from Fax Plus at a cost of $569,461.35, which
equipment was included in Lease 5508 to the DIA.
(Id. ¶ 22.)
Rogers never informed Plaintiff that any lease he had
pledged had been canceled, terminated, or was otherwise unusable
(Pl.’s SOF ¶ 30.)
He testified that there were
no controls in place at LGR to ensure that a lease that he
thought would come to fruition actually did.
(Id. ¶ 31.)
loans from Plaintiff on which LGR has defaulted, which were
secured by non-existent collateral, have a remaining balance of
(Id. ¶ 34.)
The loans on which LGR defaulted
that were secured by doubly-pledged collateral have a remaining
balance of $490,000.
(Id. ¶ 35.)
Plaintiff has written off
$373,630.02 of loans secured by Lease 5508.
(Id. ¶ 36.)
In addition to the foregoing conduct, Defendants also
engaged in a check-kiting scheme.
In particular, Rogers caused
the LGR Entities to establish checking accounts with Plaintiff,
Susquehanna Bank and Roma Bank.
(Id. ¶ 37.)
LGR enjoyed next-
day availability at these three banks, such that if Rogers
deposited a check, the banks would credit the funds to Rogers
immediately as though he had deposited cash.
(Id. ¶ 39.)
LGR deposited a check into its accounts at Plaintiff’s bank,
Plaintiff would make those funds available to LGR even though
the funds had not yet been paid by the bank upon whose accounts
the check was drawn.
(Id. ¶ 40.)
This allowed Defendants to
utilize funds not yet in their accounts, based on LGR’s credit
strength and history of having the incoming checks ultimately
clear without problem.
(Id. ¶ 41.)
Defendants used this next-
day availability at all three banks to utilize funds and replace
funds with ultimately uncollectible checks in a circular
(Id. ¶ 42.)
The check-kiting scheme fell apart on April 11, 2013, when
Roma’s Executive Vice President, Keith Pericoloso, called Rogers
and told him that his accounts were blocked and that he should
not deposit any further checks.
(Id. ¶ 52.)
evening, Plaintiff received a notification that a large dollar
amount of checks were going to be returned from Roma Bank.
On April 12, 2013, Plaintiff received checks back from
Roma Bank that were unpaid.
(Id. ¶ 55.)
During the days that
followed, Plaintiff applied a series of chargebacks to the
account, and there were ultimately more chargebacks than there
was money in the account.
(Id. ¶¶ 58-59.)
overdrawn in excess of $3 million.
The account had been
(Id. ¶ 59.)
by the end of April 2013, Defendants had overdrawn their account
at Susquehanna Bank by $2,890,000, and at Roma Bank by
$2,100,000, for a combined total in excess of $8 million.
Although Rogers assured the banks that he would
eventually pay them all of the money owed, Defendants still owed
Plaintiff $2,089,911.04 in overdraft as of the date that
Plaintiff filed this summary judgment motion.
(Id. ¶¶ 67, 70.)
Because Plaintiff asserts claims under the federal RICO
statute, 18 U.S.C. §§ 1961-68, the Court exercises subject
matter jurisdiction over this action pursuant to 28 U.S.C. §
The Court exercises supplemental jurisdiction over
Plaintiff’s state law claims pursuant to 28 U.S.C. § 1367.
III. STANDARD FOR SUMMARY JUDGMENT
Summary judgment is appropriate where the Court is
satisfied that “‘the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any,’ . . . demonstrate the absence of a genuine
issue of material fact” and that the moving party is entitled to
a judgment as a matter of law.
Celotex Corp. v. Catrett, 477
U.S. 317, 322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)
(citing Fed. R. Civ. P. 56).
An issue is “genuine” if it is supported by evidence such
that a reasonable jury could return a verdict in the nonmoving
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).
A fact is
“material” if, under the governing substantive law, a dispute
about the fact might affect the outcome of the suit.
considering a motion for summary judgment, a district court may
not make credibility determinations or engage in any weighing of
the evidence; instead, the non-moving party's evidence ‘is to be
believed and all justifiable inferences are to be drawn in his
Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d
Cir. 2004)(citing Anderson, 477 U.S. at 255, 106 S. Ct. 2505).
Initially, the moving party bears the burden of
demonstrating the absence of a genuine issue of material fact.
Celotex, 477 U.S. at 323, 106 S. Ct. 2548 (“[A] party seeking
summary judgment always bears the initial responsibility of
informing the district court of the basis for its motion, and
identifying those portions of ‘the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any,’ which it believes demonstrate the
absence of a genuine issue of material fact.”); see also
Singletary v. Pa. Dept. of Corr., 266 F.3d 186, 192 n.2 (3d Cir.
2001) (“Although the initial burden is on the summary judgment
movant to show the absence of a genuine issue of material fact,
‘the burden on the moving party may be discharged by ‘showing’ - that is, pointing out to the district court -- that there is
an absence of evidence to support the nonmoving party’s case’
when the nonmoving party bears the ultimate burden of
proof.”)(citing Celotex, 477 U.S. at 325, 106 S. Ct. 2548).
Once the moving party has met this burden, the nonmoving
party must identify, by affidavits or otherwise, specific facts
showing that there is a genuine issue for trial.
U.S. at 324, 106 S. Ct. 2548.
A “party opposing summary
judgment ‘may not rest upon the mere allegations or denials of
the . . . pleading[s.]’”
232 (3d Cir. 2001).
Saldana v. Kmart Corp., 260 F.3d 228,
For “the non-moving party[ ] to prevail,
[that party] must ‘make a showing sufficient to establish the
existence of [every] element essential to that party’s case, and
on which that party will bear the burden of proof at trial.’”
Cooper v. Sniezek, 418 F. App’x 56, 58 (3d Cir. 2011) (citing
Celotex, 477 U.S. at 322, 106 S. Ct. 2548).
Thus, to withstand
a properly supported motion for summary judgment, the nonmoving
party must identify specific facts and affirmative evidence that
contradict those offered by the moving party.
U.S. at 257, 106 S. Ct. 2505.
A. Breach of Contract (Count IV)
Plaintiff asserts a breach of contract claim against LGR in
connection with LGR’s failure to make payments on the loans
extended by Plaintiff.
“To prevail on a breach of contract
claim under New Jersey law, a plaintiff must establish three
elements: (1) the existence of a valid contract between the
parties; (2) failure of the defendant to perform its obligations
under the contract; and (3) a causal relationship between the
breach and the plaintiff's alleged damages.”
Workers Int’l Ass'n Local Union No. 27, AFL–CIO v. E.P.
Donnelly, Inc., 737 F.3d 879, 900 (3d Cir. 2013) (citing Coyle
v. Englander's, 199 N.J. Super. 212, 488 A.2d 1083 (N.J. Super.
Ct. App. Div. 1985)).
In this case, the undisputed evidence demonstrates that
Plaintiff extended over one hundred secured loans to LGR.
(Pl.’s SOF ¶ 1.)
As collateral for each loan, LGR provided
Plaintiff with a security interest in the equipment covered by
the loans and all lease payments received in connection with the
(Am. Compl. ¶ 18; Answer ¶ 18.)
LGR collected the
lease payments from the lessees and was supposed to use those
payments to repay Plaintiff for the loans that the leases
(Am. Compl. ¶ 19; Answer ¶ 19.)
At the time the
amended complaint was filed in this case, there were sixty-four
(Watts Decl. ¶ 19.)
Starting in April 2013,
LGR fell behind in paying its loans to Plaintiff.
(Pl.’s SOF ¶
Ultimately, LGR defaulted on each of the sixty-four loans
and has not repaid them.
(Pl.’s SOF ¶ 114; Watts Decl. ¶ 20.)
At the time Plaintiff filed its summary judgment motion, the
total remaining balance due on the loans was $2,222,299.64.
(Pl.’s SOF ¶ 114.)
Plaintiff accelerated all amounts due under
the loans and gave LGR and Rogers notice of the default and
(Id. ¶¶ 115, 116.)
In response to the summary judgment motion, the Receiver,
acting on behalf of LGR, indicated that it lacks a factual basis
to oppose Plaintiff’s motion.
LGR has thus failed to bring to
the Court's attention any evidence that could conceivably create
a genuine issue of material fact as to the validity or
performance of the contracts at issue, and the Court therefore
concludes that the contracts were valid and enforceable.
Moreover, because it is undisputed that LGR was obligated to
make payments of principal and interest under the loan documents
and failed to do so, which has resulted in damages to Plaintiff
in the amount of $2,222,299.64, the Court finds that Plaintiff
is entitled to summary judgment on its claim against LGR for
breach of contract.
B. Breach of Guaranty (Count V)
Plaintiff also seeks to enforce the personal guaranty
executed by Defendant Rogers.
“To be entitled to judgment on a
guaranty, a plaintiff must demonstrate:
1) execution of the guarantee by the guarantor (i.e.,
that it was the defendant who signed the
2) the principal obligation and terms of the guaranty;
3) the lender's reliance on the guaranty in extending
monies to the borrower;
4) default by the principal obligator;
5) written demand for payment on the guarantee;
6) failure of the guarantor to pay upon written
Consol. Brick & Bldg. Supplies, Inc. v. Alosi Const., Inc., No.
05–1490, 2006 WL 2135805, at *6 (D.N.J. July 28, 2006) (quoting
United States v. DelGuercio, 818 F. Supp. 725, 727–28 (D.N.J.
Plaintiff is not entitled to summary judgment on its claim
for breach of a personal guaranty against Rogers.
personally guaranteed all of the sixty-four loans to LGR at
issue in this case.
(Pl.’s SOF ¶ 112.)
Under the terms of the
guaranty, Rogers absolutely and unconditionally guaranteed full
and punctual payment and satisfaction of the indebtedness of LGR
up to a limit of $2 million.
(Id. ¶ 113.)
monies to LGR pursuant to the sixty-four loans at issue, and, as
discussed above, LGR has not remitted payment to Plaintiff in
the amount of $2,222,299.64.
Plaintiff then wrote a letter to
Rogers dated October 21, 2013 seeking payment on the debt.
Compl., Ex. I.)
demand for same.
Rogers has not paid despite Plaintiff’s written
(Pl.’s SOF ¶ 117.)
Notwithstanding the foregoing, Plaintiff fails to
demonstrate one of the prima facie elements of a claim for
breach of a personal guaranty.
Specifically, there is no
evidence that Plaintiff relied on the guaranty in extending
loans to LGR.
In fact, the guaranty states as follows: “this
Guaranty is executed at Borrower’s request [that is, at LGR’s
request] and not at the request of Lender.”
(Am. Compl., Ex.
Therefore, according to the express terms of the guaranty,
Plaintiff did not even request the execution of a guaranty, let
alone rely on it in loaning money to LGR.
While Rogers has
failed to submit any opposition to the summary judgment motion,
the Court finds that there is at this time a genuine issue of
material fact as to Plaintiff’s claim for breach of personal
Summary judgment as to this claim, therefore, will be
C. Federal RICO Violations (Count I)
The federal RICO statute, codified at 18 U.S.C. § 1961-68,
provides, in relevant part, that:
It shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the
activities of which affect, 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).
To prove a violation of the federal RICO
statute, a plaintiff must demonstrate: (1) conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity.
Lum v. Bank of Am., 361 F.3d 217, 223 (3d Cir. 2004) (citing
Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.
Ct. 3275, 87 L. Ed. 2d 346 (1985)).
With respect to the enterprise element, it appears that the
enterprise here is an association-in-fact enterprise.
association-in-fact enterprise “must have a structure.”
Ins. Brokerage Antitrust Litig., 618 F.3d 300, 366 (3d Cir.
2010)(quoting Boyle v. United States, 556 U.S. 938, 129 S. Ct.
2237, 173 L. Ed. 2d 1265 (2009)).
“Specifically, it ‘must have
at least three structural features: a purpose, relationships
among those associated with the enterprise, and longevity
sufficient to permit these associates to pursue the enterprise’s
Id. (quoting Boyle, 556 U.S. at 946, 129 S. Ct.
The Court finds that the evidence of record demonstrates
that Rogers and the LGR Entities formed an association-in-fact
It is undisputed that LGR Group, LGR Consortium,
and University Copy Services “are companies owned and/or
controlled by and for the benefit of defendant Rogers.”
Compl. [Doc. No. 34] ¶ 14; Answer [Doc. No. 63] ¶ 14.)
Defendants also admit that Rogers caused LGR Consortium and
University Copy Services to open bank accounts at Roma Bank, and
caused LGR Group to open an account at Susquehanna Bank.
Compl. ¶ 26; Answer ¶ 26.)
Silvana Milelli, the senior vice-
president of Plaintiff, testified that LGR had an account with
Plaintiff, and that checks were drawn on accounts of LGR Group,
LGR Consortium, and University Copy Service and were made
payable to LGR and were deposited at LGR’s account at Liberty
(T. of 2/20/14 Hearing at 28:5-7, 30:24-31:10.)
Rogers also confirmed that checks were written by LGR or
entities that were related to or owned by LGR.
(T. of 1/30/14
Hearing at 87:16-25).
In addition to the inter-relatedness of the entities, the
evidence of record demonstrates that these four entities were
associated for the purpose of conducting a check kiting scheme
to hide the fraud that Rogers and LGR perpetrated on Plaintiff.
The fraudulent nature of a check kiting scheme has been
described as follows:
By depositing in one account checks drawn on other
insufficiently funded accounts, the offender in a
check-kiting scheme tricks two or more banks into
inflating account balances and honoring bad checks.
In effect, the offender writes himself a series of
unauthorized, unsecured, and interest-free “loans,”
which may or may not be repaid. His actions put the
banks at risk for the amount of the insufficient
funds and deprive the banks of their assets by
placing the unauthorized funds at the disposal of
the check kiter.
United States v. Jiminez, 513 F.3d 62, 73 (3d Cir. 2008)(quoting
United States v. Flowers, 55 F.3d 218, 219 n.1 (6th Cir.), cert.
denied, 516 U.S. 901, 116 S. Ct. 261, 133 L. Ed. 2d 185 (1995)).
In this case, as noted above, Rogers caused LGR and the
other defendants to establish checking accounts with Plaintiff,
Susquehanna Bank, and Roma Bank.
LGR enjoyed “next day”
availability at all three banks, such that when LGR deposited a
check into its accounts, the banks as a courtesy made those
funds immediately available, even though the funds had not yet
been paid by the bank upon whose account the check was drawn.
LGR utilized this privilege to draw on funds in its accounts and
the accounts of its related entities before the funds were
actually paid among the banks, spending and replacing funds with
ultimately uncollectible checks, in a circular fashion.
When Roma Bank directed Rogers not to deposit any more
money in the Roma Bank accounts, the checks drawn on those
accounts were dishonored, but Plaintiff had already credited the
funds to LGR’s account.
When Plaintiff began to apply a series
of chargebacks to the account, corresponding to deposits that
LGR made at Plaintiff’s bank for checks that were not honored by
other banks, the account had been overdrawn by $3,414,538.62.
Additionally, the accounts at Susquehanna Bank had been
overdrawn by nearly $3 million, and the accounts at Roma by $2.1
The Court finds that the purpose of this association
in fact enterprise was to allow Rogers to carry out a check
kiting scheme to create artificially inflated account balances
and defraud the banks, and the association existed for at least
several months, if not years, during which time Defendants were
able to defraud Plaintiff, Susquehanna Bank and Roma Bank of
approximately $8 million.
The scheme to defraud only fell apart
when Roma Bank refused to allow any further deposits into its
Turning to the “conduct” element of § 1962(c), Plaintiff
must demonstrate that Defendants “participated in the operation
or management of the enterprise itself,” and that they played
“some part in directing the enterprise's affairs.”
Ernst & Young, 507 U.S. 170, 179, 183, 113 S. Ct. 1163, 122 L.
Ed. 2d 525 (1993).
Here, Plaintiff lumps all of the defendants
together and fails to present evidence that each individual
defendant conducted or participated in the conduct of the
affairs of the enterprise.
The evidence of record demonstrates
only that Rogers and LGR participated in the conduct of the
enterprise;2 there is no evidence that LGR Group, LGR Consortium,
or University Copy Services played any part in directing the
The Court finds that the remaining RICO elements are also
To establish a “pattern of racketeering activity,” a
plaintiff must show that the defendants committed at least two
predicate acts of racketeering from the list of acts provided in
18 U.S.C. § 1961(1).
18 U.S.C. § 1961(5).
Bank fraud, 18
U.S.C. § 1344, is one of the acts enumerated in Section 1961(1),
and the Third Circuit has held that a check kiting scheme
constitutes bank fraud.3
United States v. Rafsky, 803 F.2d 105,
Rogers may be held individually liable under RICO as one of the
“persons” who engaged in racketeering activity through the
enterprise. See Jaguar Cars Inc. v. Royal Oaks Motor Car Co.,
46 F.3d 258, 261 (3d Cir. 1995) (“corporate officers/employees .
. . may properly be held liable as persons managing the affairs
of their corporation as an enterprise through a pattern of
racketeering activity.”). Rogers is the founder, sole managing
member, President and chief executive officer of LGR, and LGR,
LGR Group, LGR Consortium and University Copy Services are all
controlled and beneficially owned by Rogers. While LGR was the
corporate entity through which Rogers defrauded Plaintiff, the
Court also finds him individually liable given his intimate role
in the operation of LGR.
18 U.S.C. § 1344 provides as follows:
Whoever knowingly executes, or attempts to execute, a
scheme or artifice—
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits,
assets, securities, or other property owned by, or
under the custody or control of, a financial
107 n.1 (3d Cir. 1986).
Because the Court finds that Rogers and
LGR engaged in a check kiting scheme, the “racketeering
activity” element is satisfied.
Moreover, the Court finds that
in depositing multiple checks in an effort to defraud Plaintiff,
Rogers and LGR engaged in separate violations of the bank fraud
statute so as to satisfy the “pattern” of racketeering activity
See United States v. Schwartz, 899 F.2d 243, 248 (3d
Cir. 1990), cert. denied, 498 U.S. 901, 111 S. Ct. 259, 112 L.
Ed. 2d 217 (1990).4
Finally, the Court notes that to establish a RICO
“pattern,” it must also be shown that the predicate acts
institution, by means of false or fraudulent
pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned
not more than 30 years, or both.
Courts in other circuits have held that if all predicate acts
derive from the same criminal scheme, episode, or objective,
there can be no pattern, continuity, or differentiation. See,
e.g., Madden v. Gluck, 815 F.2d 1163, 1164 (8th Cir. 1987).
However, courts in this circuit have held that separate
fraudulent acts within the same scheme are sufficient to satisfy
the pattern element of a RICO claim. See, e.g., Continental Cas.
Co. v. Slonchka, No. Civ. A. 04-1587, 2005 WL 2176834, at *7
(W.D. Pa. Aug. 18, 2005)(“RICO's pattern requirement may be met
by a showing of ‘multiple predicates within a single scheme that
were related and that amounted to, or threatened the likelihood
of, continued criminal activity.’”) (internal citation omitted);
Sheridan v. Weinberger, 687 F. Supp. 152, 155 (M.D. Pa.
1987)(“Most recently, however, the Third Circuit has ruled that
a complaint alleging two or more predicate acts in furtherance
of single, not necessarily on-going and open-ended, unlawful
scheme may be sufficient to establish a pattern of racketeering
themselves amount to, or that they otherwise constitute a threat
of, continuing racketeering activity.
H.J. Inc. v. Northwestern
Bell Telephone Co., 492 U.S. 229, 240, 109 S. Ct. 2893, 106 L.
Ed. 2d 195 (1989).
The Third Circuit has interpreted the
Supreme Court’s holding as follows:
Of course, not every single scheme comprising two or
more predicate acts will constitute a pattern.
Continuity refers “either to a closed period of
repeated conduct, or to past conduct that by its
nature projects into the future with a threat of
repetition.” A short-term scheme threatening no
future criminal activity will not suffice. Although
Congress intended a “natural and common-sense approach
to RICO's pattern element” and continuity “depends on
the specific facts of each case,” the Court delineated
some parameters of the analysis. The Court stressed
that continuity is “centrally a temporal concept.”
Thus, the length of time over which the criminal
activity occurs or threatens to occur is an important
factor. As the Court noted, “[p]redicate acts
extending over a few weeks or months and threatening
no future criminal conduct do not satisfy this
requirement: Congress was concerned in RICO with longterm criminal conduct.”
Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1412–13
(1991)(internal citations omitted).
The Court finds that although there is no longer an ongoing
fraud, this is not a case of an episodic fraud or racketeering
Plaintiff demonstrates a fraud which begot other
fraud in related contexts spanning at least from 2010 through
The initial loans may or may not have been procured by
However, at some point LGR was not
receiving income to repay the loans from Plaintiff because it
never purchased, and therefore never leased, the equipment that
was supposed to be purchased with the loan proceeds.
than return the loan proceeds, and to avoid defaulting on the
loans, Rogers and LGR engaged in the check kiting scheme,
purporting to make payments on the loans with money that was not
in their account.
In so doing, Rogers and LGR not only
defrauded Plaintiff, but also defrauded Susquehanna Bank and
While the conduct may have ceased, it lasted
sufficiently long to constitute a “closed-end” pattern of
Plaintiff contends that the initial loans were fraudulently
induced in two respects: for some loans, Rogers borrowed money
on the basis that the loan proceeds would be utilized to
purchase equipment, but he never purchased the equipment, never
returned the loan proceeds, and instead diverted the funds for
other purposes. However, there is no evidence that Rogers -- at
the time he borrowed the funds -- had no intention of purchasing
the equipment. For other loans, Plaintiff contends that Rogers
pledged leases as collateral for loans to two different banks,
but the extent to which the leases were already pledged to
Susquehanna Bank at the time Rogers also pledged them to
Plaintiff is unclear. If the leases were not doubly-pledged at
the time he offered them to Plaintiff, he did not make
misrepresentations to Plaintiff. In the absence of evidence of
material misrepresentations by Rogers, Plaintiff would not be
entitled to summary judgment under a common law fraud theory.
Bank fraud under 18 U.S.C. § 1344, by contrast, does not require
material misrepresentations, and LGR and Rogers’ efforts to
defraud Plaintiff are sufficient to constitute bank fraud under
Accordingly, the Court concludes that Plaintiff has
presented evidence that Rogers and LGR violated the federal RICO
statute based on their check kiting scheme, which has resulted
in damages to Plaintiff in the form of overdrafts amounting to
Plaintiff also seeks to recover under RICO for
the outstanding balance on the sixty-four loans between
Plaintiff and LGR, which totals $2,222,299.64, on the basis that
the only way Defendants could keep the loan payments current
and, as characterized by Plaintiff, “delay the day of reckoning”
was through the check kiting scheme.
The Court agrees that in addition to the check kiting
scheme, Rogers and LGR engaged in bank fraud by failing to
purchase equipment with loan proceeds as promised as a condition
of the loans.
In United States v. Schwartz, 899 F.2d at 246,
the Third Circuit noted that under the bank fraud statute, “it
is an offense to execute a scheme or artifice to defraud a
federally chartered or insured financial institution or to
obtain money from it ‘by means of false or fraudulent pretenses,
representations, or promises.’”
Given the disjunctive statutory
In addition, under RICO, Plaintiff is entitled to treble
damages, costs of suit and attorney’s fees. 18 U.S.C. § 1964(c)
(“Any person injured in his business or property by reason of a
violation of section 1962 of this chapter may sue therefor in
any appropriate United States district court and shall recover
threefold the damages he sustains and the cost of the suit,
including a reasonable attorney's fee.”).
language, the Court held that “a person may commit a bank fraud
without making false or fraudulent pretenses, representations or
promises, as this is the ‘plain meaning’ of the statute.”
Here, there is evidence that Rogers, through LGR, executed
a scheme to defraud Plaintiff.
Rogers knew that he had borrowed
money from Plaintiff to purchase equipment which he never
purchased, instead retaining the proceeds and failing to obtain
collateral to support the loans.
For example, although
Plaintiff loaned LGR $588,114.67 for the purchase of 143 Savin
Model 9033b copiers from FaxPlus, LGR never purchased the
In fact, Rogers falsely represented to FaxPlus that
the reason for its inability to fund the sale was that Plaintiff
would not release funds, even though Plaintiff had already
provided the funds to LGR.
It simply cannot be denied that
Rogers and LGR retained the loan proceeds with knowledge that
these funds were not theirs to keep.
Similarly, while it is not clear whether LGR had already
pledged certain leases to Susquehanna Bank at the time it
pledged certain leases as collateral to Plaintiff, it is clear
that at some point the leases were doubly-pledged as collateral
to both banks.
At that point, LGR had obtained loans that were
twice the value of the equipment he purchased and exceeded $1
Again, Rogers must have known that LGR retained
substantial excess funds that it was not entitled to keep, yet
failed to take steps to return the loan proceeds.
Rogers’ conduct was fraudulent and violated 18 U.S.C. §
However, the Court will not award Plaintiff the entire
$2,222,299.64 requested through this summary judgment motion, as
there is not evidence in the record that all sixty-four loans
were procured or tainted by fraud.
As such, the Court will
require Plaintiff to submit a separate application that
delineates which of the sixty-four loans either were not secured
by collateral despite a contractual obligation to obtain such
collateral, or were secured by doubly-pledged collateral.7
Rogers is Not Personally Liable for LGR’s Loans
Plaintiff seeks to impose liability upon Rogers personally
for the wrongdoing committed against Liberty Bell under the
“participation theory” of liability.
However, liability under
this theory requires that underlying action sounds in tort as
opposed to contract.
Saltiel v. GSI Consultants, Inc., 170 N.J.
297, 308–09, 788 A.2d 268 (N.J. 2002).
A tort remedy does not
arise from a contractual relationship unless the breaching party
Having found that Plaintiff is entitled to damages under RICO,
which recovery is trebled, as well as damages for breach of
contract based upon the sixty-four loans that are in default,
the Court need not address Plaintiff’s summary judgment motion
to the extent Plaintiff seeks judgment on the remaining causes
of action in the complaint, as any recovery thereon would be
owed an independent duty imposed by law.
Id. at 314, 788 A.2d
268 (citing Int'l Minerals & Mining Corp. v. Citicorp N. Am.,
Inc., 736 F. Supp. 587, 597 (D.N.J. 1990)).
Here, with respect to the RICO claim, the Court already
found that Rogers is personally liable.
As to the breach of
contract claim, the loan documents defined the scope of the
parties’ obligations and Plaintiff does not present any evidence
that Rogers owed it an independent duty that arose other than by
As such, the “participation theory” is inapplicable
to Plaintiff’s breach of contract claim.
Plaintiff’s Request for Permanent Appointment of
Receiver and Accounting
Finally, Plaintiff requests in light of Defendants’
conduct, that the Court enter an order making the Receiver
permanent and requiring a final accounting in due course.
Subsequent to the filing of Plaintiff’s summary judgment motion,
the Receiver filed a motion to set a claim bar date and prepare
a report and recommendation concerning the disposition of the
assets of the LGR Entities.
In support of the Receiver’s
motion, the Receiver represents that the LGR Entities are not
viable as going concerns, and that it is in the best interest of
the creditors of the LGR Entities that the Entities’ affairs are
The Court, by separate Order, will grant the
Receiver’s motion and finds that appointment of a permanent
receiver is unnecessary at this time given that the business of
the LGR entities will be wound down.
The Court will direct that
an accounting be performed in due course in connection with the
report and recommendation to be prepared by the Receiver.
For the reasons set forth above, the Court will grant
summary judgment in favor of Plaintiff on Count I of the amended
complaint to the extent Plaintiff asserts a RICO claim against
Rogers and LGR, and summary judgment will be denied to the
extent Count I asserts a RICO claim against the other LGR
Plaintiff will also be granted summary judgment on
Count IV of the amended complaint for breach of contract as to
Plaintiff’s motion for summary judgment will be denied as
to Count V of the amended complaint for breach of guaranty as to
Plaintiff’s motion for summary judgment as to Counts
II, III, and VI8 will be denied without prejudice, as the Court
has not addressed these counts given its findings with respect
to the RICO and breach of contract claims.
Count VII is a claim concerning fraudulent transfers of
equipment and funds from LGR to the remaining LGR Entities.
Plaintiff has not specifically addressed this count in its
summary judgment motion, and the Court does not address it
Plaintiff will be granted leave to file a renewed
application with respect to the amount of damages to be awarded
in connection with its RICO claim.
An Order consistent with this Opinion will be entered.
__s/ Noel L. Hillman____
NOEL L. HILLMAN, U.S.D.J.
Dated: September 22, 2015
At Camden, New Jersey
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