VFI Associates, LLC v. Lobo Machinery Corp
1:08-cv-00014
W.D. Va.Mar 22, 2012Background
- VFI Associates, LLC sued Lobo Machinery, Lobo Power Tools, Yuan, and Chang in 2008 for a scheme defrauding VFI via inflated prices and kickbacks, tried on damages after prior liability rulings.
- Lobo entities allegedly moved funds and manipulated records to conceal kickbacks to Boyd and affiliates; Chang controlled Lobo Power Tools’ books and prepared false invoices.
- Yuan and Chang, as California-based operators, ran the enterprise to sell finishing lines at inflated prices to VFI, with kickbacks to Boyd’s group.
- Chang invoked the Fifth Amendment during a second deposition and trial, prompting a sanctions-based evidentiary impact; defendants presented no evidence at trial.
- Damages sought included RICO and state-law theories; court calculated damages at $1,187,466.47 before trebling, then trebled to $3,562,399.41; attorneys’ fees awarded to plaintiffs subject to reduction.
- The court dismissed direct claims by Nicewonder LP I and Burke LP I, holding shareholders/members cannot recover directly for injuries to the corporation absent independent injury; final judgment awarded damages and fees to VFI.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| RICO liability for Chang | Chang participated in a RICO enterprise. | RICO pattern requirement not satisfied. | Chang liable under §1962(c) and (d). |
| Existence of a RICO “pattern” | Predicate acts were numerous and over time. | One overall scheme; no meaningful continuity. | Pattern shown; related acts over a substantial period constitute continuity. |
| Direct recovery by VFI members | Members suffered distinct injuries from the fraud. | Injury to VFI only; no distinct injury to members. | Nicewonder LP I and Burke LP I cannot recover directly; remedies flow from VFI. |
| Punitive damages | Punitive damages appropriate under state/federal theories. | Federal RICO recovery preempts punitive damages; duplicative with state claims. | No punitive damages awarded. |
| Attorneys’ fees | Fees reasonable and recoverable under RICO/VA conspiracy. | Fees excessive; reduce appropriately. | Attorneys’ fees awarded to VFI in the amount of $356,386.91 after adjustments. |
Key Cases Cited
- Boyle v. United States, 556 U.S. 938 (2009) (defines pattern requires multiple predicate acts with related purposes)
- Reves v. Ernst & Young, 507 U.S. 170 (1993) (participation in directing the enterprise suffices for liability)
- MCM Partners, Inc. v. Andrews-Bartlett & Assocs., Inc., 62 F.3d 967 (7th Cir. 1995) (lower-rung participants can be liable as part of the enterprise)
- Ashland Oil, Inc. v. Arnett, 875 F.2d 1271 (7th Cir. 1989) (continuity shown across multiple predicate acts in a single scheme)
- ePlus Tech., Inc. v. Aboud, 313 F.3d 166 (4th Cir. 2002) (adverse inference from Fifth Amendment invocation may support liability finding)
- In re XE Servs. Alien Tort Litig., 665 F. Supp. 2d 569 (E.D. Va. 2009) (RICO-like remedies limited; civil remedy for RICO is exclusive)
- Rum Creek Coal Sales, Inc. v. Caperton, 31 F.3d 169 (4th Cir. 1994) (lodestar approach for attorney’s fees; Johnson factors considered)