The opinion of the court was delivered by: JAMES B. MORAN
Plaintiff, the City of Chicago (the City), brings this action under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq., against defendants, Reliable Truck Parts Co., Inc. (Reliable), Dave Kaplan, Leroy Kaplan, Edward R. Brandwein (Brandwein) and William Koehler (Koehler), alleging that defendants instituted and conducted a scheme to defraud plaintiff by overcharging it for various auto parts and miscellaneous supplies. In addition, the amended complaint alleges pendent state claims for breach of contract, common law fraud and an accounting. Defendants have also filed a counterclaim against plaintiff for recovery on unpaid invoices. Before us now are defendants' and plaintiff's cross-motions for summary judgment on the amended complaint and on Reliable's counterclaim; and plaintiff's motion to strike defendants' motion for summary judgment and to preclude introduction of evidence by defendants. For reasons as stated below, the parties' motions are granted in part and denied in part.
The complaint alleges that Reliable and certain of its officers and employees defrauded the City by charging inflated prices for truck parts. From the inception of this litigation the allegations made by the City in this civil suit have also been the subject of a grand jury investigation targeting the defendants. All of the individual defendants have asserted their Fifth Amendment privileges against self-incrimination. Included below is a brief recitation of facts that have been stated in detail in prior memoranda and orders, as well as additional facts that are relevant to the motions now at hand.
Pursuant to various contracts, Reliable supplied the City's Departments of Police, Fire, Water, Public Works, Aviation, Sewers, and Streets and Sanitation with automobile parts and various other miscellaneous supplies between January 1978 and September 11, 1987. The contracts specify that the price charged for a particular item be ascertained from current manufacturers' list prices, and that the price lists, catalogs and invoices describing the manufacturers' part numbers, list price and applicable discount should be provided to the City. The contracts which are at issue in this lawsuit have been attached, in whole or in part, as exhibits.
According to the City, from October 1978 until September 1987 Reliable mailed them invoices containing false information. The prices charged and the part numbers included on the invoices allegedly diverged from the actual manufacturers' list. On or about December 29, 1986, defendant Koehler mailed to the City what purported to be the master price list of all parts from all manufacturers from whom the City would order items through its contracts with Reliable. The City alleges that this list included false information in that it contained only certain parts supplied by a single manufacturer and that the prices included on the list were inflated over the manufacturers' actual list prices.
In addition to goods sold to the City pursuant to written contracts, the City purchased other items from Reliable between 1978 and 1987. Several of the City's employees testified that, in practice, when an employee in one of the using departments needed parts he or she would telephone a vendor with whom the City had some written contract (i.e. Reliable) and order the needed part (Skipton dep. at 39-46; Calhoun dep. at 81-83; Bannister dep. at 77-78; Jennings dep. at 57-59). According to the City, any of its employees who ordered goods from Reliable not covered by a written contract, were acting in an unauthorized manner and therefore were not agents of the City. The City maintains that in some of the written contracts there were provisions allowing for the sale of non-specified auto parts.
The invoices that Reliable submitted to the City were accompanied by a City form, called a CP-45, that specified the contract under which the payment was sought, and which included a signed certification by Reliable that the pricing was in accordance with the contract. The CP-45s were approved by the purchasing agent for the City, wherein the City certified that it examined the CP-45s and attached invoices and that the prices stated therein were correct.
The City discontinued payments to Reliable on September 11, 1987. There are outstanding invoices due to Reliable for goods that were received by the City.
The City has calculated that it paid $ 4,986,318.77 to Reliable during the years 1978-1987. Reliable alleges that totalling the invoices in its possession, it charged a total dollar amount of $ 3,537,343.74 to the City between 1978 and 1987. In order to estimate the total overcharge, the City examined a sample of invoices from the more than 9,900 invoices submitted by Reliable during the relevant period. Ted Marszalek (Marszalek), Deputy Comptroller for the City, prepared a report (the City's report) summarizing the damages. Marszalek reviewed 418 invoices and determined the percentage overcharge on those invoices. He then averaged those percentage overcharges to obtain an average overcharge payment. According to the City's report, the average overcharge on the surveyed invoices was 28% of the amount billed. The City then extrapolated this sample percentage to the total invoices and arrived at a total overcharge amount of $ 1,396,169.26 from 1978 through 1987.
Reliable disputes the City's sampling technique and disagrees with the City's estimated overcharge amount. The parties agree that Marszalek did not perform a perfect random sampling of the invoices and did not perform various statistics tests in performing his analysis. Marszalek analyzed only those invoices where he was able to determine what part was referenced in the invoice and what the correct price was for that part. Furthermore, Marszalek assumed a 50% discount for certain parts when he was unable to find the invoice item specified in the written contract.
I. Plaintiff's Motion to Strike
The City moves to strike defendants' motion for summary judgment and for an order precluding defendants from offering evidence to oppose the City's motion for summary judgment because the individual defendants asserted their Fifth Amendment privilege and therefore have not answered discovery requests concerning these same facts.
As a corporate defendant Reliable does not have a Fifth Amendment privilege. While the court agrees that Reliable has not been able to reply to the City's discovery requests fully, it has responded as best it could, given the circumstances, and is not in violation of any court order regarding discovery.
Reliable has provided a significant amount of evidence to the City and the City has attached and relies on much of this evidence in its motion for summary judgment. Reliable is therefore entitled to support its motion and oppose the City's motion by offering evidence, other than privileged testimony.
The individual defendants are in a somewhat different position. This court has previously upheld the individual defendants' rights to assert their Fifth Amendment privileges.
Throughout the history of this case the individual defendants have consistently asserted their privileges and have refused to respond to any of the City's discovery requests. Although the individual defendants have been well within their rights, the City is correct in pointing out that in this civil case they cannot use the Fifth Amendment as both a sword and a shield. The individual defendants cannot hide behind the protection of the Fifth Amendment as to their contentions and later attempt to offer privileged testimony disputing the City's evidence or supporting their own defenses. S.E.C. v. Benson, 657 F. Supp. 1122, 1129 (S.D.N.Y. 1987). However, the defendants have not offered any privileged testimony or affidavits, but instead rely only on those documents previously produced in the course of this litigation.
The individuals are not therefore abusing their Fifth Amendment privilege but are merely asserting their legitimate right to attack the City's case with evidence that is in the record. To "forbid the defendants from submitting any evidence in rebuttal, when the [plaintiff] has submitted volumes of exhibits in support of its motion, would prove here too 'costly' a price" for the defendants' proper assertion of their privilege. S.E.C. v. Rehtorik, 135 F.R.D. 204, 206 (S.D.Fla. 1991).
The City argues that defendants should be precluded from offering any evidence to support their motion or to rebut the City's motion. We believe that this would impose too harsh a penalty on a defendant who asserts his Fifth Amendment privilege and then is inevitably faced with losing any civil case where the plaintiff moves for summary judgment. While the individuals who have asserted their Fifth Amendment privilege cannot now submit their own testimony or affidavits, any evidence that has been provided or made available to the City is fair game to all parties.
II. Defendants' Motion for Summary Judgment
Defendants move this court for summary judgment, alleging that (1) the City has not established the existence of damages and therefore has failed to make out an essential element of its fraud, contract and RICO claims; (2) there were items sold to the City pursuant to oral contracts, and such items should be excluded from the City's claims since it cannot apply the terms of some alleged written contract not covering the ordered merchandise or apply other terms not agreed to by the parties; (3) the City cannot establish its claims with respect to alleged contracts numbered 9853, 9139, 8182, and 8972 because it has failed to either produce executed copies, or establish certain terms of those alleged contracts; (4) since Koehler was not employed by Reliable until 1984, the City has not and cannot make out any claims against him for the years 1978-1983; and (5) as to its counterclaim, Reliable seeks recovery on unpaid invoices for merchandise that was sold and delivered to the City.
The City seeks to recover for alleged overcharges on merchandise sold to it by Reliable, based on breach of contract, fraud and RICO theories. Each of these causes of action requires the City to prove the fact of injury. On the other hand, it is the trier of fact's obligation to determine what calculation of damages to apply and the amount of damages can be estimated on any reasonable basis. Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 564 (1930) (holding that where a party establishes the fact of damage, the facts and circumstances of the case can be put before the jury in order to enable them to estimate and fix the amount of damages to be awarded); U.C. Castings Co. v. Knight, 754 F.2d 1363, 1374 (7th Cir. 1985) (noting that only a reasonable basis of computation is required for the submission of the question of damages to the jury).
Defendants seem to be confusing the fact that the plaintiff must establish evidence of the existence of an injury, as opposed to proving the actual amount of damages. Ironically, the cases defendants cite say as much. West v. The Western Casualty & Surety Co., 846 F.2d 387, 393 (7th Cir. 1988) (stating that with regard to fraud, plaintiff must prove that it was damaged because of reliance on false statements); Robinson v. City Colleges of Chicago, 656 F. Supp. 555, 561 (N.D. Ill. 1987) (holding that under RICO plaintiff must prove an injury because of violation of statute); Mannion v. Stallings, & Company, Inc., 204 Ill. App. 3d 179, 149 Ill. Dec. 438, 442, 561 N.E.2d 1134 (Ill.App. 1990) (noting that breach of the terms of contracts must establish evidence of damages resulting from the breach).
Defendants, in essence, dispute the extrapolation and accuracy of the total damage amount when they question the plaintiff's sampling process and lack of statistical reliability. However, they have neither presented evidence to rebut nor do they seem to contest the fact that the plaintiff has shown an injury. At this stage of the game it is not the amount of damages that concerns us, but whether the plaintiff has met its burden by providing sufficient evidence to establish the existence of an injury from ...