                                                                                                                           Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-18-1995

Jaguar v Royal Oaks Motor Car
Precedential or Non-Precedential:

Docket 93-5783




Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995

Recommended Citation
"Jaguar v Royal Oaks Motor Car" (1995). 1995 Decisions. Paper 13.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/13


This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
        UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT
               _________________

                   NO. 93-5783
                _________________

                JAGUAR CARS INC.

                       v.

     ROYAL OAKS MOTOR CAR COMPANY, INC.;
          THEODORE J. FORHECZ, SR.;
                MARK FORHECZ;
          THEODORE J. FORHECZ, JR.;
         RICHARD KIRSH; JACK RUSHER;
                EDWARD ZELLER

                Mark M. Forhecz, Appellant

               ___________________

                   No. 93-5784
               ___________________

                JAGUAR CARS INC.

                       v.

     ROYAL OAKS MOTOR CAR COMPANY, INC.;
          THEODORE J. FORHECZ, SR.;
                MARK FORHECZ;
          THEODORE J. FORHECZ, JR.;
         RICHARD KIRSH; JACK RUSHER;
                EDWARD ZELLER

           Theodore J. Forhecz, Sr., Appellant
     _____________________________________

On Appeal From the United States District Court
        For the District of New Jersey
          (D.C. Civ. No. 91-cv-02014)
     _____________________________________

              Argued: July 25, 1994

    Before:   BECKER, ALITO, Circuit Judges,
                   and BRODY, District Judge.*

                    (Filed January 18, 1995)


                         CARL J. CHIAPPA, ESQUIRE (Argued)
                         Townley & Updike
                         450 Lexington Avenue
                         New York, NY 10174

                         Attorney for Jaguar Cars


                         GARY R. BATTISTONI, ESQUIRE (Argued)
                         Drinker, Biddle & Reath
                         1345 Chestnut Street
                         Philadelphia National Bank Bldg.
                         Philadelphia, PA 19107-3496

                         Attorney for Theodore J. Forhecz, Sr.


                         MARTIN G. MARGOLIS, ESQUIRE (Argued)
                         STUART POBERESKIN, ESQUIRE
                         Margolis, Meshulam & Pobereskin
                         60 Pompton Avenue
                         Verona, New Jersey 07044

                         Attorney for Mark M. Forhecz


                  ____________________________

                      OPINION OF THE COURT
                  ____________________________

BECKER, Circuit Judge.


          This appeal arises out of a civil RICO action, 18

U.S.C.A. § 1951 et. seq. (1984), brought by plaintiff, Jaguar

Cars, Inc. ("Jaguar"), against Theodore Forhecz, Sr., and his

sons Theodore Forhecz, Jr. and Mark Forhecz, alleging that they

*
 . Honorable Anita B. Brody, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.
had perpetrated a scheme to systematically submit fraudulent

warranty claims to Jaguar through their jointly owned Jaguar

dealership, Royal Oaks Motor Car Company, Inc. ("Royal Oaks") in

violation of RICO sections 1962(c) and (d).   A jury awarded

Jaguar damages of $1.1 million against Theodore Forhecz, Sr.

("Theodore, Sr.") and $900,000 against Mark Forhecz ("Mark").1

In its final judgment, the district court molded the verdict to

reflect treble damages for the RICO violations, as required by 18

U.S.C.A. § 1964(c) (1984).

          Theodore, Sr. contends that the evidence was legally

insufficient to find him liable of the RICO predicate acts of

aiding and abetting mail fraud.   Additionally, Theodore, Sr. and

Mark ("the defendants") contend that Jaguar's RICO claims were

legally insufficient because Jaguar failed to establish

sufficient distinctiveness between the defendant "persons,"

allegedly liable for the RICO violations, and the "enterprise"

through which those persons acted.   This latter contention

requires us to reconsider our interpretation of the civil RICO

statute in light of evolving Supreme Court precedent.   More

particularly, we are faced with the question whether this court's

jurisprudence concerning the distinctiveness requirement of 18

U.S.C.A. § 1962(c) (1988), see Glessner v. Kenny, 952 F.2d 702,

710 (3d Cir. 1991), survived the Supreme Court's opinions in


1
 . Theodore Forhecz, Jr. was in charge of sales and reported to
his brother Mark. Theodore, Jr. was absolved of RICO violations
by the district court and is not a party to this appeal.
Reves v. Ernst & Young, 113 S.Ct. 1163 (1993) and National

Organization for Women v. Scheidler, 114 S.Ct. 798 (1994).

          Because we decide that this court's application of the

distinctiveness requirement of § 1962(c) to corporate officers

and directors does not survive Reves and Scheidler, and because

we are, therefore, satisfied that corporate officers/employees,

such as the defendants, may properly be held liable as persons

managing the affairs of their corporation as an enterprise

through a pattern of racketeering activity, we will affirm.
                   I.   FACTS AND PROCEDURAL HISTORY

          Theodore, Sr. was the 51% owner and president of the

Royal Oaks dealership.     The remaining 49% of the dealership was

owned by Mark and Theodore, Jr.     Mark was the general manager of

Royal Oaks and ran the day-to-day operations of the dealership.

In managing Royal Oaks, Mark reported to his father, who was the

president and majority shareholder.     Theodore, Sr. was actively

involved in the operation of the dealership, earning a salary of

roughly one-half million dollars a year for his services.

Theodore, Sr. spent between twenty-five and thirty hours a week

at Royal Oaks and met with Mark on a daily basis to discuss the

dealership's operations.

          The trial record demonstrated that the Royal Oaks

dealership, through the actions of its employees, perpetrated a

widespread scheme from as early as 1987 through May 1991 to

defraud Jaguar through the submission of thousands of fraudulent

warranty claims.    Under this scheme, warranty claims were

continuously submitted to Jaguar for the cost of labor and parts
for alleged repairs that were either unnecessary, were never

actually performed, or were performed on cars that were no longer

under warranty.   The scheme included submitting fictitious time-

sheets, doctoring the warranty paperwork submitted to Jaguar, and

altering new parts to make them look old and in need of

replacement.   Additionally, an outside sublet paint-and-body

shop, Kolorworks, and its owner, Linda Kucharski, assisted the

defendants by helping them construct fraudulent warranty claims

for Royal Oaks to submit to Jaguar.

          In total, Royal Oaks defrauded Jaguar in an amount of

between one and two million dollars,2 enabling Royal Oaks to

generate hundreds of thousands of dollars of warranty income per

month and to maintain extremely lucrative salaries for the

defendants through periods of declining sales income even though

its work bays were often empty and its technicians idle.   The

2
 . The one to two million dollar estimate comes from testimony
that between 30% and 60% of the warranty repairs at the
dealership were fraudulent, combined with evidence that during
this period Jaguar paid a total of $3,487,080 to Royal Oaks for
warranty claims. We reject defendants' contention on appeal that
this evidence was too uncertain and speculative to support the
jury's verdict of $1.1 million against Theodore, Sr. and $900,000
against Mark. Jaguar's inability to give exact data on the fraud
was due to the defendants' secretive scheme in which the
paperwork for legitimate and fraudulent transactions was
identical. It is well settled that in such circumstances "the
jury may make a just and reasonable estimate of the damage based
on relevant data." Bigelow v. RKO Radio Pictures, Inc., 327 U.S.
251, 264, 66 S.Ct. 574, 580 (1946); see also Danny Kresky
Enterprises Corp. v. Magid, 716 F.2d 206, 213 (3d Cir. 1983)
("[P]laintiffs must be free to select their own damage theories
as long as they are supported by a reasonable foundation.").
Given the evidence presented by Jaguar, we conclude that the jury
had a reasonable foundation on which to base its verdict.
evidence presented at trial demonstrated that actual work had

declined to a point where there were few, if any, cars in the

service department.

            Correspondingly, in order to occupy their time, the

dealership's ten service technicians regularly sat at their

workbenches reading magazines, or congregated to pitch coins,

play ping-pong, softball, or operate electronic cars.

            In October 1990, Jaguar began to suspect fraud at Royal

Oaks and, in an unprecedented move, sent a team of officials into

the dealership for an entire week to watch every repair being

made.    In order to avoid detection, the defendants placed a load

of new cars in the service areas for mock repairs, so that the

area looked full and technicians were kept busy while Jaguar's

representatives were at the dealership.    Such actions along with

other modifications and refinements to the fraudulent scheme

allowed the fraud to continue until May of 1991.

            After discovering the fraud and terminating the

dealership in May of 1991, Jaguar brought suit in the District

Court for the District of New Jersey alleging violations of RICO

sections 1962(c) and (d).    Section 1962(d) prohibits conspiring

to violate sub-section (c).    18 U.S.C.A. § 1962(d) (West Supp.

1994).    Accordingly, the viability of Jaguar's section (d) claim

depends on the legal sufficiency of its § 1962(c) claim.

            As noted above, the jury awarded damages against

Theodore, Sr. and Mark on Jaguar's RICO claims.    The district

court upheld the jury's award in response to the defendants'

post-trial motions for judgment as a matter of law under Fed R.
Civ. Proc. 50(a) or for a new trial under Fed. R. Civ. Proc. 59.

This appeal from the judgment and from the district court's order

denying the defendants' post-trial motions followed.
                                II.

            The defendants contend that Jaguar's RICO claims were

legally insufficient in that Jaguar failed to allege a violation

of § 1962(c) by "persons" operating or managing a distinct

"enterprise."    Since this is a question of law, we exercise

plenary review.   See Lightning Lube, Inc. v. Witco Corp., 4 F.3d

1153, 1166 (3d Cir. 1993).   Section 1962(c) provides, in relevant

part:
            It shall be unlawful for any person employed
            by or associated with any enterprise engaged
            in,   or   the   activities   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. . . .


18 U.S.C.A. § 1962(c) (1984).

            It is uncontested, on appeal, that Royal Oaks conducted

"a pattern of racketeering activity" which affected interstate

commerce.   Given that § 1962(c) requires conduct by a "person
employed by or associated with any enterprise," the issue is

whether Jaguar has alleged activity by both a person and an

enterprise.   "Person" includes "any individual or entity capable

of holding a legal or beneficial interest in property."     18

U.S.C.A. § 1961(3) (1984).   "Enterprise" includes "any

individual, partnership, corporation, association, or other legal
entity, and any union or group of individuals associated in fact

although not a legal entity."     18 U.S.C.A. § 1961(4) (1984).
                                  A.

            This court first addressed § 1962(c)'s requirement to

plead persons distinct from an enterprise in Hirsch v. Enright

Refining Co., 751 F.2d 628, 633 (3d Cir. 1984).    In Enright, a

jewelry manufacturer brought an action alleging fraudulent

misrepresentation and a corresponding violation of § 1962(c)

against a lone defendant -- a corporation engaged in metal

refining.    In Enright we concluded that the defendant corporation

could not be liable under § 1962(c) in that "the `person' subject

to liability cannot be the same entity as the `enterprise.'"      Id.

at 633.    Because the person charged with liability in Enright,

the corporate defendant, was "the same entity as the entity

fulfilling the enterprise requirement," we reversed the § 1962(c)

RICO judgment in favor of the plaintiff.     Id. at 633.

            In Enright we articulated two grounds in support of our

holding.    The first was a literal reading of the statute: "the

language contemplates that the `person' must be associated with a

separate `enterprise' before there can be RICO liability on the

part of the `person.'"    Id.   The second ground was a belief that

Congress intended to limit RICO's application to preventing the

infiltration of legitimate organizations by criminal and corrupt

organizations: "[i]t is in keeping with that Congressional scheme

to orient section 1962(c) toward punishing the infiltrating

criminals rather than the legitimate corporation which might be
an innocent victim of the racketeering activity in some

circumstances."   Id.

          In Sedima v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275

(1985), the Supreme Court foreclosed Enright's second rationale.
          Instead of being used against mobsters and
          organized criminals, [RICO] has become a tool
          for everyday fraud cases brought against
          respected and legitimate enterprises.      Yet
          Congress wanted to reach both legitimate and
          illegitimate enterprises.    The former enjoy
          neither an inherent incapacity for criminal
          activity nor immunity from its consequences.
          The   fact  that   [RICO]   is  used   against
          respected businesses allegedly engaged in a
          pattern of specifically identified criminal
          conduct is hardly a sufficient reason for
          assuming   that   the   provision   is   being
          misconstrued. . . . The fact that RICO has
          been applied in situations not expressly
          anticipated by Congress does not demonstrate
          ambiguity.   It demonstrates breadth.    It is
          true that private civil actions under the
          statute are being brought almost solely
          against such defendants, rather than against
          the archetypal, intimidating mobster.      Yet
          this defect -- if defect it is -- is inherent
          in the statute as written, and its correction
          must lie with Congress.


Id. at 499, 105 S.Ct. at 3286 (citation, internal quotation marks

and footnote omitted).   Thus, the Court's holding in Sedima

undermined the second basis of the Enright holding.
          This court, nonetheless, properly continued after

Sedima to apply a distinctiveness requirement, since Enright's

holding was also based on § 1962(c)'s textual directive to allege

conduct by defendant "persons" operating an "enterprise."   Thus,

Enright's basic holding that "the `person' subject to liability

cannot be the same entity as the `enterprise,'" Enright, 751 F.2d
at 633, plainly survived Sedima.    See Glessner, 952 F.2d at 710

("The requirement of distinctiveness stems from the statute

itself, and has been applied following Sedima.");   Brittingham v.

Mobil Corp., 943 F.2d 297, 300 (3d Cir. 1991) ("[T]he plain

language of the statute provides that the person must be

`employed by or associated with' -- and therefore separate from -

- the enterprise . . . .");   Petro-Tech, Inc. v. Western Co., 824

F.2d 1349, 1359 (3d Cir. 1987) ("We explained in Enright that

§ 1962(c) was drafted in such a way that Congress must have

intended the `person' and the `enterprise' to be distinct

entities under that provision.").

          This court's post-Sedima jurisprudence, however, could

be described as following an oblique angle, which, with the

benefit of hindsight, appears unfortunate.   In defining the scope

of the distinctiveness requirement, our cases focused not on the

statutory rationale, but on a re-incarnation of the defunct

infiltrating racketeer rationale of Enright.    Since, under the

infiltrating racketeer rationale, legitimate corporations were

properly viewed as victims of the racketeering activity, we

reasoned that defendant persons needed to be associated with

another separate, illegitimate infiltrating enterprise.     In other

words, we concluded that a successful § 1962(c) claim could not

allege conduct on the part of corporate officers and directors

acting through a legitimate corporate enterprise.    This

limitation on actions under § 1962(c) was born of a pre-Sedima
"infiltrating racketeer" reading of RICO's legislative history,

which, as explained below, was clearly emasculated by the Supreme
Court in Reves and Scheidler.    Clear resolution of the issues

requires, however, that we briefly sketch our post-Sedima

jurisprudence.3

          This jurisprudence began to diverge in Petro-Tech, Inc.

v. Western Co., 824 F.2d at 1359, where, relying on the

infiltrating racketeer legislative history cited in Enright, we

held that "§ 1962(c) was intended to govern only those instances

in which an `innocent' or `passive' corporation is victimized by

the RICO `persons,' and either drained of its own money or used

as a passive tool to extract money from third parties."     After

Petro-Tech, we continued to adhere to this limitation on

§ 1962(c) claims.

          In Glessner v. Kenny, 952 F.2d at 710-14, we considered

whether "the individual defendants who were officers and

employees of the corporation[] can be the `persons' who were

conducting a pattern of racketeering through the corporation[] as

an enterprise."   Id. at 713.   Glessner involved a suit by

defrauded customers against the defendants, William Kenney, and

the other officers of Meenan Oil Co. ("Meenan"), who allegedly

acted through the corporation to fraudulently market and sell

residential home heating systems.   Glessner upheld the district

3
 . Although Reves and Scheidler did not explicitly address
§ 1962(c)'s distinctiveness requirement, we nevertheless
conclude, see infra part D, that these cases by implication
emasculated our distinctiveness jurisprudence. Given this
conclusion, we believe it is necessary to first discuss and
interpret this court's relevant post-Sedima jurisprudence in
order to effectively demonstrate how the analysis of Reves and
Scheidler implicitly overruled this court's interpretation of
§ 1962(c)'s distinctiveness requirement.
court's dismissal of plaintiffs' § 1962(c) claim for failure to

plead persons distinct from the corporate enterprise.    The

Glessner panel acknowledged that in certain instances officers

and employees could constitute persons conducting a pattern of

racketeering activity through a corporate enterprise (though it

did not expand upon this statement).     Glessner, 952 F.2d at 713.

Nevertheless, the panel dismissed the action on the authority of

the Petro-Tech limitation of § 1962(c) claims to "only those

instances in which an `innocent' or `passive' corporation is

victimized by the RICO `persons,' and either drained of its own

money or used as a passive tool to extract money from third

parties."   Glessner, 952 F.2d at 713.

            In concluding that plaintiffs failed to overcome this

limitation, the Glessner panel stated:
          [T]he plaintiffs' injuries for which suit was
          brought arose out of their failure to obtain
          the safe, state-of-the-art [home heating]
          units for which they paid.       The individual
          defendants were alleged to have participated
          in the fraudulent advertising as agents of
          the corporation.     The RICO case statement
          alleges merely that "all of the defendants
          held positions as officers and principals of
          the corporate defendants, and received income
          as such.     All of the defendants derived
          income from each and every sale of the [home
          heating]   products.       These    sales   were
          generated by defendants' multiple mail fraud
          violations which combined into a pattern of
          racketeering."          This     activity     is
          indistinguishable from that alleged as to the
          corporations and is a far cry from the use by
          individuals    of     an    innocent     passive
          corporation contemplated by Petro-Tech.       We
          conclude therefore that this is not the
          situation in which individual defendants,
          whether employees/officers or not, can be
          viewed as distinct from the corporations
          deemed the enterprise.    It follows that
          dismissal of the section 1962(c) claim was
          not erroneous.


Id. at 713-14 (citations and internal quotation marks omitted).
Thus, the Glessner panel, relying in turn on Petro-Tech's

infiltrating racketeer limitation to § 1962(c) actions, dismissed

the plaintiffs' claim that the defendant persons conducted the

corporate enterprise through a pattern of racketeering activity.
                                B.

          Under this court's interpretation of § 1962(c), as

articulated in Glessner, Jaguar's RICO claims would fail unless

Royal Oaks was either (1) the victim of the defendant's scheme,

or (2) a passive tool through which the scheme was conducted.

Pointing to the Glessner panel's acknowledgement that officers

and employees of a corporate enterprise could in certain

instances be properly viewed as distinct defendant "persons"

under this test, Jaguar initially contends that this is such a

case and, accordingly, is distinguishable from Glessner.

          We begin by observing that it seems inconceivable that

Royal Oaks could be viewed as the victim of the defendants'

racketeering activity, since Jaguar alleges that Royal Oaks is

the enterprise through which the defendants conducted their

racketeering activity.   Rather, Jaguar contends that its claim is

distinguishable from Glessner in that the defendants in this

action can be viewed as persons using Royal Oaks as a passive

tool to extract money from third parties.
          In determining the scope of the "passive tool"

limitation, we begin by recognizing that in Glessner, the court

concluded that the plaintiffs had failed to allege that the

defendant officers were using Meenan as a passive tool to extract

money from third parties.     The Glessner panel reached this

conclusion despite the fact that the plaintiffs had alleged that

the defendants had operated the Meenan corporation so as to

derive income from multiple mail fraud violations.      Bound by the

strictures of Petro-Tech, the Glessner panel reasoned that the

defendants' activities were "a far cry from the use by

individuals of an innocent passive corporation contemplated by

Petro-Tech."     Glessner, 952 F.2d at 714.   Given this conclusion,

and recognizing that the activity contemplated by Petro-Tech was

rooted in Enright's infiltrating racketeer approach, we conclude

that this court's current interpretation of § 1962(c) improperly

limits its application to those circumstances where infiltrating

racketeers have successfully positioned themselves as employees

and/or officers within an otherwise legitimate corporate

enterprise.

          Our interpretation of this court's "passive instrument"

limitation is buttressed by the recognition that corporations are

by definition passive instruments, since they are artificially

created legal persons that can only act through their officers

and employees.    Thus, a test that examines whether a corporation

is "a passive tool to extract money from third parties" can be

useful in determining whether officers and employees are
sufficiently distinct from the corporation only if one adopts the

infiltrating-racketeer rationale.

            In sum, we find Jaguar's contention that this case,

unlike Glessner, satisfies our case law's interpretation of

§ 1962(c)'s distinctiveness requirement unpersuasive.    In this

action, as in Glessner, the plaintiffs have alleged that the

defendant "persons" operated, as officers and employees, a

corporate "enterprise" through a pattern of racketeering

activity.    Similarly, like Glessner, the defendants here are not

distinct, infiltrating racketeers operating a legitimate

corporate enterprise as an innocent passive tool; rather, they

are officers and employees actively managing the affairs of an

otherwise legitimate corporation through a pattern of

racketeering activity.
                                  C.

             Even though we conclude that this case is

indistinguishable from Glessner, we nevertheless hold that the

defendants here are liable under § 1962(c) as persons managing

the affairs of their corporation as an enterprise through a

pattern of racketeering activity, since this court's application

of the distinctiveness requirement to shield corporate officers

and directors from § 1962(c) liability does not survive Reves,
113 S.Ct. at 1163 and Scheidler, 114 S.Ct at 798.

             In Reves, the Supreme Court was faced with the question

whether § 1962(c) "persons" must participate in the "operation or

management" of the "enterprise" in order to be subject to

liability.    The case involved a § 1962(c) action against auditors
working for what was then the accounting firm of Arthur Young,

which was engaged in an audit of the Farmer's Cooperative of

Arkansas and Oklahoma ("the Co-op").    Reves, 113 S.Ct. at 1167.

In certifying the Co-op's annual financial statements on two

separate occasions, the auditors knowingly failed to reflect a

Co-op investment at fair market value.    Id. at 1167-68.    Such a

valuation would have resulted in the financial statements

properly reflecting the Co-op's insolvency.     Id.

          Given this malfeasance, the Co-op's trustee in

bankruptcy brought state and federal securities fraud claims

along with a RICO claim under § 1962(c) on behalf of a certified

class of noteholders.   Id.   The trustee alleged that the auditors

were the "persons" who conducted or participated in a corporate

"enterprise" (the Co-op) through a pattern of racketeering

activity consisting of the Co-op's fraudulent sale of securities

with the aid of knowingly false financial statements.       While the

auditors were found liable to the noteholders for their

securities fraud claims,4 the Court faced the question whether

they were also liable under § 1962(c) (that is, whether the

auditors were persons conducting or participating in the conduct

of the Co-op's affairs, given that the Co-op was the alleged

"enterprise" under § 1962(c)).   Id. at 1169.



4
 . The auditors federal security fraud liability had been upheld
by a previous Supreme Court opinion, addressing the question of
whether the Co-op's notes were securities within the meaning of
§ 3(a)(10) of the Securities and Exchange Act of 1934. Reves v.
Ernst & Young, 494 U.S. 56, 110 S.Ct. 945 (1990).
          The Court held that liability under § 1962(c) is

limited to those who "participate in the operation or management

of the enterprise itself."    Id. at 1173.   Since the auditors were

independent and did not operate or manage the Co-op, the Court

ruled that they were not liable under § 1962(c).5    In so holding,

the Court undermined the use of § 1962(c) to hold liable

"`outsiders' who have no official position within the

enterprise."   Id.   Reading RICO's legislative history, the Court

stated that subsections (a) and (b) of § 1962 addressed

Congressional concern with the infiltration of legitimate

organization by racketeers, while in contrast "§ 1962(c) is

limited to persons `employed by or associated with' an

enterprise, suggesting a more limited reach than subsections (a)
5
 . Commentators have observed that the plaintiffs in Reves could
possibly have satisfied the operation and management requirement
of § 1962(c) had they alleged the existence of another
enterprise.

          In Reves the enterprise was the Co-op, but
          this is not the only possibility.      Section
          1962(4) defines enterprise as including any
          "legal entity" . . . and "any union or group
          of individuals associated in fact although
          not a legal entity." . . . Thus, RICO's
          enterprise requirement can be satisfied by "a
          group of individuals associated in fact" even
          though not a distinct "legal entity."     What
          if plaintiff in Reves had alleged that an
          association in fact consisting of Arthur
          Young, Jack White [the Co-op's General
          Manager], and the Co-op constituted the
          racketeering enterprise, and that Arthur
          Young   directed   the    affairs   of    this
          "enterprise?"

See Daniel B. Fischel & Alan O. Sykes, Civil Rico after Reves: An
Economic Commentary, 1993 SUP. CT. REV. 193-94 (footnote omitted).
and (b)."   Id.   (emphasis added); see also id. ("Of course,

`outsiders' may be liable under § 1962(c) if they are `associated

with' an enterprise and participate in the conduct of its affairs

-- that is participate in the operation or management of the

enterprise itself.").

            In the wake of Reves, the Supreme Court reiterated its

interpretation of § 1962(c) in National Organization for Women v.

Scheidler, 114 S.Ct. at 798, which concluded that an economic

motive was not required for liability under § 1962(c).     In so

holding, the Court stated:    "By contrast [with subsections (a)

and (b)], the `enterprise' in subsection (c) connotes generally

the vehicle through which the unlawful pattern of racketeering

activity is committed, rather than the victim of that activity."

Id. at 804.    In light of Reves and Scheidler, we must, as Jaguar

has requested, re-evaluate the liability under § 1962(c) of

officers and employees acting through a corporate enterprise.6

6
 . We recognize that in Gasoline Sales v. Aero Oil Co., 1994
U.S. App. LEXIS 30399 (3d Cir. November 1, 1994), this court
continued to apply Glessner's limitation on § 1962(c) actions
against officers and directors acting through a corporate
"enterprise." In Gasoline Sales, plaintiffs alleged, in part,
that Getty Petroleum Corp. ("Getty") and its wholly-owned
subsidiaries engaged in a widespread fraudulent scheme to defraud
retail gasoline stations. One of the plaintiff's claims in
Gasoline Sales was against Getty's corporate officers, alleging
that they operated and managed Getty as an enterprise through a
pattern of racketeering activity. Relying on Glessner, the
Gasoline Sales panel upheld the dismissal of this claim,

            We have held that corporate employees who
            victimize their employer by draining it of
            its own money or using it as a passive tool
            to extract money from third parties are
            proper section 1962(c) defendants. Glessner,
            952 F.2d at 713. Where the employees merely
                               D.

          Our case law heretofore has focused on the degree of

distinctiveness between the defendant persons and the enterprise.

As we have stated, this court has held that in order for

liability under § 1962(c) to attach, the corporate enterprise

must be either (1) a victim, or (2) a passive tool used to

extract money from third parties (as opposed to the enterprise

through which the fraudulent scheme was perpetrated).        But

the first of these two situations -- a corporate "enterprise" as

victim of the racketeering activity of the defendant "persons" --

is in direct conflict with both Reves and Scheidler.

          In these cases the Supreme Court held that the

"enterprise" in subsection (c) is properly viewed as the "vehicle

through which the unlawful pattern of racketeering activity is

committed, rather than the victim of that activity."    Scheidler,

114 S.Ct. at 804; Reves, 113 S.Ct. at 1171 ("Congress

(..continued)
          participate in the corporation's own fraud by
          acting as corporate agents, however, the
          employees may not be sued under section
          1962(c). Id. at 713-14.

Id. at *7.
          Notwithstanding this court's internal operating
procedures, see Internal Operating Procedure 9.1 (binding
subsequent panels by prior published panel decisions absent in
banc consideration), we conclude that the Gasoline Sales panel's
application of the Glessner limitation is also not conclusive
here because the Supreme Court's opinions in Reves and Scheidler
were not called to the panel's attention, and the opinion did not
either explicitly or implicitly decide the impact of those cases
on the issues raised in that appeal.
consistently referred to subsection (c) as prohibiting the

operation of an enterprise through a pattern of racketeering

activity and to subsections (a) and (b) as prohibiting the

acquisition of an enterprise.").   Consequently, a victim

corporation "drained of its own money" by pilfering officers and

employees could not reasonably be viewed as the enterprise

through which employee persons carried out their racketeering

activity.    Rather, in such an instance, the proper enterprise

would be the association of employees who are victimizing the

corporation, while the victim corporation would not be the

enterprise, but instead the § 1962(c) claimant.

            The second of our case law's two situations -- the use

of a corporate enterprise by infiltrating racketeers as a passive

tool or instrument to extract money from third parties -- remains

a proper, but very limited, application of § 1962(c) under Reves.

See Fischel & Sykes, supra, at 191 ("Unless the outsid[er] . . .

is responsible for or in control of management decision making,

enabling it to `direct the enterprise's affairs,' there can be no

RICO liability" (quoting Reves, 113 S.Ct. at 1170)).

            In Reves, the Court acknowledged that in certain rare
instances infiltrating "persons" distinct from the corporate

enterprise could satisfy the "operation or management test," if

they exerted sufficient control over the corporation's

activities.    "`[O]utsiders' may be liable under § 1962(c) if they

are `associated with' an enterprise and participate in the

conduct of its affairs -- that is, participate in the operation

or management of the enterprise itself."   Reves, 113 S.Ct. at
1173 ("An enterprise also might be `operated' or `managed' by

others [those not in upper management] `associated with' the

enterprise who exert control over it as, for example, by

bribery.").

           While a § 1962(c) claim can exist against persons

distinct from the corporate enterprise, so long as they exert

sufficient control over the enterprise, the Court has made clear

that the provision's reach is not limited to such rare instances.

In Reves the Court examined, and decided, the question whether

the defendant auditors "participated in the management of the Co-

op."   Reves, 113 S.Ct. at 1173.   While the majority in Reves

found that the auditors had not acted in a management capacity in

their preparation of the Co-ops's financial statements, the

dissent argued that the auditors "crossed the line separating

`outside' auditors from `inside' financial managers."7   Reves,

113 S.Ct. at 1178 (Souter dissenting).    Implicit in the Court's

analysis then, was the recognition that "inside" managers are the

"persons" § 1962(c) was designed to reach.   Thus, Glessner's

limitation to "outside" defendants, who either victimize the

corporate enterprise or operate it as a passive tool, cannot

survive the Court's holding in Reves that "inside" managers are
properly liable under § 1962(c).


7
 . We note that this court applied Reves in a similar context in
affirming the dismissal of a § 1962(c) RICO claim against
independent auditors, but without needing to consider its
implication on our distinctiveness requirement. See University
of Maryland v. Peat, Marwick, Main & Co., 996 F.2d 1534, 1538-39
(3d Cir. 1993).
          Finally, we note that, if we fail to overrule this

court's interpretation of § 1962(c), its combination with Reves

would hold liable only those persons who are sufficiently

connected to an enterprise so as to operate or manage it while

still remaining sufficiently distinct from the enterprise so as

to victimize or passively control it.   Congress could not have

intended such a razor thin zone of application.    See Sedima, 473

U.S. at 497-98, 105 S.Ct. at 3285 ("RICO is to be read broadly.

This is the lesson not only of Congress' self-consciously

expansive language and overall approach but also of its express

admonition that RICO is to `be liberally construed to effectuate

its remedial purposes,' Pub. L. 91-452, § 904(a), 84 Stat. 947."

(citation omitted)).   As we have stated, our distinctiveness

jurisprudence was born of the now defunct, pre-Sedima,

infiltrating racketeer reading of RICO's legislative history, and

is now even more clearly at odds with Supreme Court precedent as

demonstrated by Reves and Scheidler.    This court's interpretation

of § 1962(c)'s distinctiveness requirement must therefore be

brought in line with binding Supreme Court precedent.
                                E.

          We are thus left with the question: what remains of the

statutorily-based distinctiveness requirement after Reves and
Scheidler?   As we have stated, this requirement originates in the

statute's textual directive that § 1962(c) liability requires

conduct by defendant "persons" acting through an "enterprise."

In this regard, we conclude that the essential holding of Enright
remains undisturbed -- a claim simply against one corporation as
both "person" and "enterprise" is not sufficient.      Instead, a

viable § 1962(c) action requires a claim against defendant

"persons" acting through a distinct "enterprise."      But, alleging

conduct by officers or employees who operate or manage a

corporate enterprise satisfies this requirement.       A corporation

is an entity legally distinct from its officers or employees,

which satisfies the "enterprise" definition of 18 U.S.C.A.

§ 1961(4).    This section provides that "`enterprise' includes any

individual, partnership, corporation, association or other legal

entity."     18 U.S.C.A. § 1961(4) (emphasis added).    Accordingly,

Jaguar has satisfied the distinctiveness requirement of

§ 1962(c).    Jaguar has not brought a claim against Royal Oaks,

but instead seeks recovery from the defendants, as persons

operating and managing the Royal Oaks enterprise through a

pattern of racketeering activity.

             We recognize that this court has, at times, supported

its infiltrating-racketeer reading of subsection (c) by resort to

the notion that "[s]uch an interpretation avoids the absurd

result that a corporation may always be pled to be the enterprise

controlled by its employees or officers."     Glessner, 952 F.2d at
713.   Informed by the teaching of Reves and Scheidler, however,

we do not believe that allowing a § 1962(c) action against

officers conducting a pattern of racketeering activity through a

corporate enterprise yields an "absurd result."    In such an

action, the plaintiff can only recover against the defendant

officers and cannot recover against the corporation simply by

pleading the officers as the persons controlling the corporate
enterprise, since the corporate enterprise is not liable under

§ 1962(c) in this context.   Instead, a corporation would be

liable under § 1962(c), only if it engages in racketeering

activity as a "person" in another distinct "enterprise," since

only "persons" are liable for violating § 1962(c).   Petro-Tech,

824 F.2d at 1358.

          This interpretation of the distinctiveness requirement

of § 1962(c), not only accords with binding Supreme Court

precedent, as described above, but also is supported by the

interpretation adopted by all other circuits that have addressed

the question.   In United States v. Robinson, 8 F.3d 398 (7th Cir.

1993), for example, the Seventh Circuit was faced with a set of

circumstances similar to those in this case.   There, criminal

RICO charges were brought under § 1962(c) against the officers

and controlling shareholders of Renoja, a corporation that

operated as a Wendy's franchise.   The defendants engaged in a

fraudulent scheme to defraud their franchisor, Wendy's

International ("Wendy's"), by misstating the amount of their

gross sales in order to avoid paying Wendy's the required royalty

percentage.   The court, focusing on whether the defendant persons

and the corporation were distinct legal entities, rejected the

defendants' claim that the government had failed to satisfy the

distinctiveness requirement of § 1962(c):
          Robinson   was    charged   with   improperly
          conducting Renoja's activities, not his own
          activities. Robinson's claim that he and
          Renoja are inseparable entities is meritless.
          . . . Renoja was an incorporated business
          that employed several hundred people and
           filed separate income tax returns. Robinson
           and Renoja were not the same entity.


Robinson, 8 F.3d at 407.
           In reaching its conclusion, the Robinson panel relied

on an earlier opinion by then Judge Posner in McCullough v.

Suter, 757 F.2d 142, 144 (7th Cir. 1985), which held that an

unincorporated sole proprietorship was a distinct enterprise from

its owner because it employed several individuals.   In

McCullough, Judge Posner had recognized that, if the sole

proprietor had incorporated his business, the corporation could

then properly be treated as an "enterprise" under § 1962(c) even

if it employed no one else.   Id. at 144 ("If [a] one-man band

incorporates, it gets some legal protections from the corporate

form, such as limited liability; and it is just this sort of

legal shield for illegal activity that RICO tries to pierce.").

This result followed from the conjunctive definition of

"enterprise" which includes both "legal entit[ies] and any . . .

group of individuals associated in fact although not a legal
entity."   18 U.S.C.A. § 1961(4) (emphasis added).   Thus, Judge

Posner concluded, "[t]he only important thing is that it [the

enterprise] be either formally (as when there is incorporation)

or practically (as when there are other people besides the

proprietor working in the organization) separable from the

individual."

           In accord with Robinson is Sever v. Alaska Pulp Corp.,

978 F.2d 1529 (9th Cir. 1992), where the Ninth Circuit considered

a § 1962(c) claim by a former timber company employee against the
officers of his former incorporated employer.    The plaintiff

there alleged that the officers, acting through a corporate

enterprise, blacklisted him for giving unfavorable testimony to a

Congressional Subcommittee.    The district court dismissed the

action on the grounds that there was "no distinction between the

officers, agents and employees who operate the corporation and

the corporation itself."    Id. at 1534.   Addressing this argument,

the Ninth Circuit held that a corporation was by legal definition

an enterprise distinct from its officers or employees:
          This decision makes it clear that the
          inability of a corporation to operate except
          through its officers is not an impediment to
          section 1962(c) suits.     That fact poses a
          problem only when the corporation is the
          named defendant - when it is both the
          "person" and the "enterprise." In this case,
          however,   [plaintiff]   named  the   several
          individual officers as defendants/persons,
          and [the corporation] as the enterprise.
          Therefore, he has satisfied this allegation
          requirement.


Sever, 978 F.2d at 1534.    Also in accord are Davis v. Mutual Life

Ins. Co., 6 F.3d 367, 377-78 (6th Cir 1993), and Bennett v. Berg,

685 F.2d 1053, 1061 (8th Cir. 1982), aff'd en banc 710 F.2d 1361

(8th Cir.), cert. denied, 464 U.S. 1008 (1983).
             In sum, we conclude that when officers and/or employees

operate and manage a legitimate corporation, and use it to

conduct, through interstate commerce, a pattern of racketeering

activity, those defendant persons are properly liable under

§ 1962(c).


                                 III.
          In addition to challenging the legal sufficiency of his

RICO violation based on the distinctiveness requirement,

Theodore, Sr. ("Theodore") contends that insufficient evidence

was presented at trial to support the jury's finding that he was

liable of the predicate acts of mail fraud.8       The district court

considered this contention and concluded "that a reasonable jury

could readily have found liability on the RICO . . .         claims,"

because "[t]here was sufficient circumstantial evidence to prove

Theodore's knowing involvement in the fraudulent management of

the Royal Oaks service Department."       Mem. Op. at 3-4.

          In reviewing an order denying or granting a judgment as

a matter of law, we exercise plenary review, applying the same

standard as the district court.     Lightning Lube, 4 F.3d at 1166.

That standard permits such a motion to be granted "only if,

viewing the evidence in the light most favorable to the non-

movant and, giving it the advantage of every fair and reasonable

inference, there is insufficient evidence from which a jury

reasonably could find liability."       Id.   In making such a

determination, "the court may not weigh the evidence, determine

the credibility of witnesses, or substitute its version of the

facts for the jury's version."    Id.     While a "scintilla of

evidence is not enough to sustain a verdict of liability," the


8
 . Since Jaguar elected to recover against the defendants based
on the RICO claims and because we conclude that Theodore was
properly found liable for the RICO violations, we do not reach
his contention that the jury's assessment of liability against
him for negligently overseeing the dealership and for unjust
enrichment was legally insufficient.
question is "whether there is evidence upon which the jury could

properly find a verdict for that party."    Id.   It is

uncontroverted that Mark and other dealership employees committed

numerous acts of mail fraud by systematically mailing false and

fraudulent warranty claims to Jaguar.    At issue on appeal is

whether the evidence presented to the jury supports the

conclusion that Theodore aided and abetted these predicate acts.

           We have held that a defendant may be liable under RICO

if he aided or abetted the commission of at least two predicate

acts of mail fraud.   See Banks v. Wolk, 918 F.2d 418, 421 (3d

Cir. 1990); Petro-Tech, 824 F.2d at 1356.   Civil RICO liability

for aiding and abetting advances RICO's goal of permitting

recovery from anyone who has committed the predicate offenses,

"regardless of how he committed them."    Petro-Tech, 824 F.2d at

1357.   In order to find a defendant liable for aiding and

abetting a predicate act under RICO, the plaintiff must prove (1)

that the substantive act has been committed, and (2) that the

defendant alleged to have aided and abetted the act knew of the

commission of the act and acted with intent to facilitate it.

Local 560, 780 F.2d at 284.   The first element has concededly

been met in this case.   With regard to the second, a plaintiff

need not offer direct evidence of intent.    Rather, the fact

finder may infer a defendant's knowledge and intent from

circumstantial evidence.   See Genty v. Resolution Trust Corp.,

937 F.2d 899 (3d Cir. 1991); United States v. Local 560, 780 F.2d

267, 284 ("[I]t has long been settled that it is permissible to

infer from circumstantial evidence the existence of intent.").
           We must therefore consider whether, giving Jaguar the

advantage of every fair and reasonable inference, there is

sufficient evidence from which a jury reasonably could find that

Theodore knew of the fraud and acted with the intent to

facilitate it.   We recognize, as Jaguar concedes, that no single

piece of evidence links Theodore directly to the fraud.     Rather,

Jaguar contends that while Mark directed the fraudulent scheme,

Theodore's experience and active participation in the Royal Oaks

dealership, combined with the extent of the fraud, present a

sufficient basis from which a reasonable jury could have

concluded that he was aware of and facilitated the fraudulent

scheme.   We agree.

           Theodore was the 51% owner and active president of the

Royal Oaks Jaguar dealership.   While Theodore had been a car

dealer since 1956, his son Mark had relatively little experience

in operating a dealership.   Theodore was actively involved in the

operation of Royal Oaks.   He spent roughly twenty-five to thirty

hours a week at the dealership and had ultimate supervisory

responsibility for the dealership's operations.   Theodore was

Mark's supervisor, and met with him daily to discuss the

operation of the dealership, including its parts and service

department.   In order to have exculpated Theodore, the jury would

had to have believed that in those meetings they never discussed,

in any depth, the operation of the service department and the

source of that department's income; even though, during this

period, the service department was accounting for between

$200,000 and $400,000 of the dealership's monthly income, thereby
allowing Theodore to maintain his annual salary of one-half

million dollars.

          In our view, the evidence supports the conclusion that

Theodore was aware of and concerned about all of the operations

of the dealership.   His salary was five times the amount of any

other employee, including Mark.   Theodore acknowledged in his

testimony that he reviewed the dealership's financial statements

on a monthly basis and spent "a lot" of time "inspecting and

looking around the building."

          Royal Oaks generated hundreds of thousands of dollars a

month in warranty claims, while actual work had declined to a

point where there were few, if any cars in the service

department.   The evidence presented at trial demonstrated that

the dealership's ten service technicians, in order to occupy

their time, regularly sat at their workbenches reading magazines,

or congregated to pitch coins, play ping-pong, play softball, or

operate electronic cars.   Similarly, some technicians themselves

asked to be laid off because they didn't believe that there was

enough work to keep them busy.    In a dealership which employed a

total of roughly thirty-five people, a jury could reasonably have

found it likely that Theodore was aware of a fraudulent scheme so

pervasive that the evidence suggested it was the subject of

innumerable jokes among Royal Oaks' employees.

          The jury could also reasonably have concluded that an

experienced dealer, such as Theodore, would have grown suspicious

of the excessive amount of service income attributable to

warranty work, when examining the dealership's financial
statements.   Because of the pervasive warranty fraud, Royal Oaks

had an unusually high percentage of service department income

attributable to warranty work, as opposed to customer-paid

repairs.   Given Theodore's monthly scrutiny of the dealership's

financial statements, the jury could have concluded he was aware

of and facilitated the source of this aberrant financial data.

           In addition, Theodore was aware of Jaguar's

unprecedented week long monitoring of Royal Oaks' service

department, and in response called Jaguar regarding it.   The jury

could reasonably have found it inconceivable that Theodore was

not aware of and did not facilitate the rampant fraud which both

preceded and followed Jaguar's investigation.

           In sum, we conclude that the evidence of Theodore's

control over the dealership (including his spending significant

time there, reviewing the financial statements, and discussing

the dealership's operations on a daily basis with his son, the

architect of the fraudulent scheme), combined with evidence of

the pervasive nature of the fraudulent scheme, allowed the jury

to reasonably find Theodore liable of aiding and abetting the

predicate acts of mail fraud.

           For the foregoing reasons, the judgment of the district

court and its order denying the defendants' post-trial motions

will be affirmed.9

9
 . We have considered and rejected, either on the merits or as
not relevant, all the remaining arguments raised in the
defendants' brief. Specifically, we note our rejection of the
defendants' contention that the district court abused its
discretion by refusing to delay the trial in order to permit the
testimony of an expert witness not listed in the pretrial order.
(..continued)
The witness was supposed to testify that Royal Oaks' customers
were satisfied with the service provided by the dealership. This
testimony is irrelevant to the allegation that Royal Oaks
submitted false warranty claims to Jaguar, and hence we agree
with the district court's ruling.
