The opinion of the court was delivered by: CONSTANCE BAKER MOTLEY
Plaintiff Montcalm Publishing Corporation ("Montcalm"), a magazine publisher, brought suit against defendant John S. Ryan ("Ryan") and several corporate defendants under the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO"), 18 U.S.C. § 1961, et seq., to recover money damages on account of defendants' allegedly fraudulent activities. Montcalm also raised a claim of common law fraud.
According to Montcalm's complaint, individual retailers of magazines display Montcalm's and other publishers' magazines for resale. For this service, publishers pay a fee to the retailers, known in the industry as the "retail display allowance" ("RDA"). On June 1, 1986, Montcalm and defendant Progressive Magazines, Inc. ("Progressive") entered into a contract whereby Progressive agreed to administer Montcalm's RDA payments for a period of two years. Under the contract, Montcalm would make lump sum payments to Progressive, which would in turn send RDA payments to individual retailers.
In its complaint, Montcalm alleged that Ryan wilfully devised a massive scheme to defraud Montcalm, other publishers and vendors entitled to RDA payments. This scheme was allegedly perpetrated through the use of the defendant corporations which were owned and controlled by Ryan. Montcalm alleged that Progressive, in furtherance of the scheme and through false and fraudulent pretenses, induced Montcalm and other publishers to enter into contracts which entrusted Progressive with millions of dollars which were to be disbursed to hundreds of individual magazines retailers. Montcalm further alleged that the defendants wilfully violated the contracts, stealing and converting at least $ 850,000.00 for their own use.
Montcalm alleged that defendants committed these acts in violation of RICO through a pattern of racketeering activity which included multiple acts of mail fraud, wire fraud, and obstruction of justice. Montcalm asserted that it only became aware of the scheme after taking discovery in the breach of contract action it filed regarding its RDA payments contract with Progressive. That case, Montcalm Publishing Corp. v. Progressive Magazines, No. 89 Civ. 5144 (DNE), was stayed when Progressive filed for bankruptcy.
On June 3, 1991, the court stayed this action as to defendants Ryan and Progressive, pending the outcome of their bankruptcy proceedings in New Jersey.
On June 28, 1991, the court granted Montcalm's motion for judgment by default against defendants Direct Marketing, Inc., Periodical Marketing, Inc., United Computer Systems Corp., Publishers Shipping Associates, Inc. and Group Publishers Services Corp. ("the Defaulting Defendants"), holding each Defaulting Defendant jointly and severally liable. The court found that after each of these defendants had been duly served with process, each had failed to answer both the complaint and the motion for judgment by default. To ascertain the extent of damages as to the Defaulting Defendants, an inquest was held on November 22, 1991.
Montcalm's proof at the inquest
At the inquest to determine the level of damages, Montcalm called one witness: Chris Grossman, the controller of Montcalm. Through Ms. Grossman, Montcalm presented proof that Montcalm had paid Progressive $ 1,333,048.16 which Progressive placed in a Concentration Account. Under the contract between Progressive and Montcalm, that money was earmarked to cover Montcalm's RDA costs, which Progressive was to pay to individual retailers. Montcalm showed at the inquest that Progressive only paid $ 1,138,935.08 from the Concentration Account into Montcalm's trust account. This represented the amount of money which was actually paid by Progressive to cover Montcalm's RDA costs. Therefore, the evidence illustrated that Progressive kept $ 194,113.08 of Montcalm's money which should have been paid to retailers. See tr. at 11-14; exhibit 1.
Montcalm also proved that it had paid Ryan and/or Progressive to perform certain services to retailers that were never performed. When Montcalm discovered this deficiency after its relationship with Ryan and Progressive was terminated, Montcalm had to pay retailers directly for the unperformed services. Therefore, Montcalm was damaged by the amount to which it had to make duplicate payments for those services. Montcalm proved that the cost of the duplicate payments was $ 191,750.95. See tr. at 14-18; exhibits 2, 3, and 7.
Montcalm also offered evidence regarding its expenses in prosecuting this case. Montcalm illustrated that the controller and her staff prepared the schedules in the case at a cost of $ 11,154.00. See tr. at 21-22; exhibit 4. Montcalm paid an investigative accountant for his work at the outset of the case ($ 8,800.00), an economic research firm for checking into the background of the defendants ($ 3,457.00), and Citizens First National Bank for providing copies of the cancelled checks from the concentration account ($ 2,986.00). See tr. at 21-22; exhibit 5. Additionally, Montcalm had legal fees of $ 165,702.00. See tr. at 23-27; exhibit 6.
Montcalm illustrated that the sum total of its compensatory damages, not including legal fees, was $ 412,261.03. See tr. at 23-24; exhibit 7. Montcalm asserted that treble compensatory damages ($ 1,236,783.09) were appropriate given that the case was brought under RICO. See tr. at 27. By adding in legal ...