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November 17, 1983

B. F. HIRSCH, INC., Plaintiff,

The opinion of the court was delivered by: FISHER

 This is an action brought by B.F. Hirsch, Inc. against defendant, Enright Refining Company, Inc., alleging breach of contract and fraudulent misrepresentation. Plaintiff seeks to recover the sum of $111,175.84, plus treble damages, pursuant to the Racketeer Influenced and Corrupt Organizations Act. Hirsch claims that Enright breached the agreement between the parties by retaining certain percentages of the precious metals sent to the defendant for refining. Defendant argues that the charging of a retainage fee is consistent with industry practice and that plaintiff knew or should have known that defendant adhered to this practice.

 There are a number of issues in dispute in this case. These include (1) whether the defendant was entitled, under the contract between the parties, to impose a retainage charge; (2) whether defendant misrepresented its refining charges to plaintiff by failing to state that it imposed a retainage charge; (3) whether defendant's conduct constituted an activity prohibited by 18 U.S.C. § 1962(b) & (c), and § 1964(c); and (4) whether the use of a retainage fee was a regularly observed practice in the refining industry. The following are the court's findings of credible facts and conclusions of law as required by Fed. R. Civ. P. 52(a).

 Plaintiff, B.F. Hirsch, Inc. (Hirsch), is a New York corporation which manufactures gold jewelry, primarily gold wedding and engagement rings. Defendant, Enright Refining Company, Inc. (Enright), is a refiner of precious metals and is located in Newark, New Jersey. Plaintiff employed the services of defendant to refine the scrap gold collected at the manufacturer's plant.

 The gold used in the manufacture of jewelry is known as "karat gold." Karat gold is not pure or fine gold but is an alloy of gold and other precious metals. Fourteen-karat gold, for example, is 14/24ths gold and 10/24ths other metals. Pure or fine gold (24 karat) is .995%, or more, gold.

 During the jewelry manufacturing process, scraps of karat gold are created in the form of grindings, lathe clippings, polish dust, etc. These scraps are collected by the manufacturer and sent to a refiner to be reduced to the component precious metals. These pure precious metals are then returned to the manufacturer for use in new jewelry. In some instances, however, the metals are not returned. Instead, the refiner pays cash to the manufacturer who then purchases the metals on the open market.

 There are four different methods used by refiners to charge for their services. First, a "refining charge" may be used. This charge is a flat rate per ounce or a percentage of the gross precious metal value. Secondly, if the refined metals are physically returned to the manufacturer a "returnable charge" may be used. This charge is a fixed rate per ounce of metal returned. If the manufacturer elects to receive cash for the gold and silver, a third charge could be used, the "cents-off charge". In that instance, the refiner pays for the precious metals at a rate lower than the London market price. The final charge used by refiners is the "retainage charge." There, the refiner agrees to return only a portion of the metals sent to him for refining. A certain percentage of the metal is retained as partial payment for the services rendered. These charges are used in different combinations by refiners and the rates or percentages of the individual charges also vary by refiner.

 Hirsch employed the refining services of Enright Refining Company and Enright Refining Company, Inc. 68 times between 1973 and 1978. Enright Refining Company was owned by John A. Enright until September of 1976, and 47 of the gold shipments were refined during this period. These shipments were assessed a refining charge plus either a cents-off or a returnable charge. These charges were reflected in the reports sent to Hirsch after each shipment was processed. Enright Refining Company did not assess a retainage fee during the period from 1973 through September 1976.

 In September 1976 the assets of Enright Refining Company were sold to the present defendant, Enright Refining Company, Inc., an entity distinct and separate from its predecessor. However, this change of ownership was not readily noticeable, as the operations of Enright continued undisturbed and with the same personnel. Enright began charging Hirsch a retainage fee in October 1976. No notice of the change was given to Hirsch and the report letters sent did not reflect the new charge. In fact, the "contents" section of the report letters indicated weight after retainage was deducted thereby masking the retainage fees. Between 1976 and 1978 Enright's retainage percentage was 0.5% for gold and 1.5% for silver. Due to the small size of the retainage percentages, it was not possible for Hirsch to determine that any retainage had been assessed.

 During the period from October 1976 through December 1977 Hirsch sent 21 shipments to Enright for refining. Throughout this time Hirsch was unaware that a retainage was being charged and that the report letters did not reflect the total contents of the shipments. The parties have stipulated that the amount of $12,196.19 represents the retainage fee charged by Enright during this period. Following the December 1977 transaction, the parties did not deal again until October 1980.

 Hirsch employed the services of Enright on two occasions in 1980. Prior to these dealings, but subsequent to their final transaction in 1977, executives from both companies attended a meeting at Hirsch's corporate offices. Although the testimony is varied on when this meeting occurred, I find that it took place in the Spring of 1978. This meeting was attended by Arthur Buxbaum, Jerry Sachs, and George Schneider for Hirsch, and by James Burnett and Gerard Turner on behalf of Enright. The testimony regarding this meeting conflicts drastically as to the subjects of discussion. Turner and Burnett stated that all of Enright's charges, including retainage, were discussed in comparison to an invoice from Englehard Industries, the refiner being used by Hirsch at the time. The Hirsch executives agreed that an Englehard invoice had been examined but also stated that the Enright executives merely said that they "could do better" without discussing retainage. The Hirsch executives described the meeting as a "missionary type" meeting through which Enright hoped to regain an old customer.

 In September of 1980 Enright sent a typed price list to Hirsch which listed its refining charges as (1) refining charge; (2) cents-off charge; and (3) a returnable charge. The price list did not list a retainage charge nor did it state anywhere that such a charge would be made. In light of this price list and the above discussed testimony, I find that Enright did not disclose, and Hirsch was not aware of, any retainage fees charged by Enright for refining services.

 Hirsch sent a shipment of ten and fourteen-karat gold scrap to Enright on September 18, 1980. In addition to other charges, Enright retained 2% of the fine gold and 5% of the fine silver in that shipment. A report letter was sent to Hirsch on October 17, 1980, but due to the mixture of ten and fourteen-karat scrap in the shipment no calculation could be made to confirm the report. A second shipment was sent to defendant on October 27, 1980. This shipment contained only fourteen-karat-gold scrap and was also charged a retainage fee. It is noted that the report letters listed contents after retainage was deducted but did not indicate that the deduction had been made. After receiving a report letter dated November 24, 1980, Hirsch compared its expected return to what it actually received and confronted Enright with its questions. At that point Enright explained that the discrepancy was due to its retainage fee. Thereafter, Hirsch brought this suit seeking to recover the amounts retained by defendant. The parties have stipulated that the amount of $98,979.65 represents the retainage charged by Enright for the 1980 shipments.

 Examining first the 21 transactions which occurred between September 1976 and December 1977, this court finds that the assessment of a retainage fee constituted a breach of the oral contract between the parties. Hirsch had dealt with Enright for a number of years and had never been charged a retainage fee. This fee was imposed without notification and without the knowledge of Hirsch. Hirsch had not agreed to the imposition of this charge and, indeed, it had never been discussed as a potential part of the agreement between the parties. Therefore, I find that defendant breached its contract with Hirsch by assessing the retainage fee.

 Under New Jersey law, the following elements must be proven to establish a prima facie case of fraudulent misrepresentation (1) a material misrepresentation of a presently existing or past fact; (2) knowledge of the falsity by the person making the misrepresentation; (3) intent that the misrepresentation be relied on; (4) reliance on the misrepresentation; and (5) damage to the party who relied on the misrepresentation. Jewish Center of Sussex County v. Whale, 86 N.J. 619, 624, 432 A.2d 521 (1981). Using these elements as the relevant criteria, I find that defendant fraudulently misrepresented its charges to Hirsch during the 1976 through 1977 period. During that period Hirsch acted on the presumption that Enright's charges had not changed since it had not been notified of any change. Enright's failure to disclose the retainage fee is a misrepresentation by omission. See -- Weintraub v. Krobatsch, 64 N.J. 445, 455, 317 A.2d 68 (1974). In addition, Enright acted affirmatively to conceal the assessment of the fee by listing the contents of the shipments in the report letters as the amount after deduction of retainage. By these acts Enright intended that Hirsch be deceived into sending gold scrap to defendant for refining and that Hirsch be deceived into accepting in payment an amount less than that contracted for. Hirsch did rely on Enright's representations and omissions and was thereby harmed. Therefore, I find that Enright is liable to Hirsch for fraudulent misrepresentation as to the transactions occurring between September 1976 and December 1977.

 Turning to the 1980 transactions, the contract analysis is basically the same as for the earlier contracts. Hirsch entered into oral contracts with Enright in 1980 based substantially on the typed price sheet supplied by Enright. These agreements did not contemplate the assessment of a retainage fee by ...

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