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Lerman v. Joyce International Inc.

argued: July 12, 1993.

DAVID LERMAN, APPELLANT IN 92-5526
v.
JOYCE INTERNATIONAL, INC., A CORPORATION OF THE STATE OF DELAWARE, AND NORMAN PELL, JOYCE INTERNATIONAL, INC., APPELLANT IN 92-5574



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY. D.C. Civil No. 87-00568.

Before: Becker, Alito, and Roth, Circuit Judges.

Author: Alito

Opinion OF THE COURT

ALITO, Circuit Judge:

In this appeal, both Joyce International, Inc. ("Joyce"), and David Lerman challenge a consolidated judgment entered by the district court. Joyce seeks reversal of the judgment in favor of Lerman on his claims for breach of his severance agreement, and Lerman seeks reversal of the judgment in favor of Joyce on its racketeering counterclaims. We affirm the district court in all respects.

I.

In May 1984, Joyce purchased from the Litton Selling Entities ("Litton")*fn1 an unincorporated division called the Litton Office Products Center ("LOPC"). LOPC sells and distributes office furniture and office supplies. The purchase agreement for LOPC provided that the LOPC assets acquired by Joyce included "without limitation, any and all of the following: . . . causes of action, judgments, claims and demands of whatsoever nature."

David Lerman, an executive vice president of LOPC, was a highly successful commission salesman. His accounts produced approximately $6 million a year in business, about one-fifth of LOPC's entire annual production for his region. Unbeknownst to LOPC, however, from the late 1970s until 1986, Lerman and several LOPC sales associates paid bribes to the purchasing agents of LOPC's customers. In order to obtain cash for these bribes, Lerman and his associates developed a fraudulent billing scheme that allowed them to sell goods from the LOPC inventory for cash without the knowledge of the LOPC billing department. Lerman and his associates used this cash primarily to bribe purchasing agents, but they also used some of the cash to purchase personal items, such as food and liquor, and to provide small loans to friends.

In 1986, Lerman terminated his employment with LOPC. Joyce and Lerman signed a severance agreement creating a transition period during August and September of 1986. Lerman agreed that during this period he would "exercise his best efforts" to train the sales personnel working on his former accounts. In addition, the agreement, as interpreted by the district court, implicitly obligated Lerman to introduce Joyce's senior management to the purchasing agents connected with these accounts. In exchange, Lerman was to receive two years of monthly payments, as well as full commissions for sales made to certain of his former accounts during the transition period. Although Lerman made little effort to introduce Joyce's management personnel to his accounts, Joyce nevertheless issued his first severance check on November 1, 1986.

At about this time, however, the sales personnel working on Lerman's former accounts left LOPC and took most of those accounts with them. Joyce approached Lerman about changing the terms of the training component of the severance agreement, and Lerman agreed to the modification in principle but asked that it be put in writing, as the severance agreement required. Joyce drafted a modification, but the parties never ratified it. Instead, Joyce stopped making severance payments to Lerman.

In February 1987, Lerman filed this action, based on diversity of citizenship, in the United States District Court for the District of New Jersey. Lerman asserted a claim for breach of the severance agreement, as well as other related contract and tort claims.*fn2 Joyce subsequently discovered Lerman's earlier misconduct and filed numerous counterclaims, including one alleging violation of the Racketeer Influenced and Corrupt Organizations ("RICO") statute, 18 U.S.C. § 1961 et seq., one alleging violation of New Jersey's "RICO" statute, N.J. Stat. Ann. 2C:41, and several based on breach of the severance agreement.*fn3 After a five-week bench trial, the district court found in favor of Lerman on his claims for breach of the severance agreement. While the district court found that Lerman had also breached that agreement by failing to introduce Joyce's senior management to the purchasing agents assigned to his accounts, the court found that Lerman's breach was not material. The court therefore held that Joyce had improperly rescinded the severance agreement and was consequently liable to Lerman for $540,771.97 in damages and prejudgment interest.

The court also held, however, that Lerman was liable to Joyce on its RICO counterclaims. While most of the conduct that formed the basis for these claims had occurred before Joyce purchased LOPC, the court held that Joyce had acquired Litton's RICO claims pursuant to the purchase agreement for LOPC. In the alternative, the court held that Joyce could assert RICO claims in its own right and that the damages for those claims were the same as the damages for the RICO claims acquired from Litton.

In calculating the amount of damages due on the RICO counterclaims, the court found that Lerman had converted $263,000 in inventory and that the inventory would have been marked up approximately 43% before sale to customers. The resulting figure of $376,000 was trebled under RICO to $1,128,000. Prejudgment interest increased the award to $1,445,987.77. In addition, the district court awarded attorney's fees and expenses in the amount of $1,133,863.68.

The district court also found in favor of Joyce on most of its other counterclaims, but the court found that the damages for these claims were the same as those awarded under the racketeering counterclaims. However, with respect to the counterclaims based on the severance agreement, the court found that Lerman's breach of the agreement had not caused Joyce any damage because the loss of Lerman's former accounts had resulted from the departure of the sales assistants, not from Lerman's failure to make introductions on behalf of senior management.

After the entry of a single, consolidated judgment, the district court denied Lerman's motion to alter or amend the judgment, and both Lerman and ...


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