Friday, August 13, 1999

The U.S. Court of Appeals has thrown out allegations that Chicago billionaire Sam Zell engaged in racketeering in a dispute with a former business partner.

The charges had been brought in a civil lawsuit filed by Richard Perlman, who worked with Zell from 1976 to 1990. He accused Zell of breach of contract, fraud and racketeering for failing to pay money owed from real estate partnerships.

The ruling by the federal 7th Circuit Court of Appeals, based in Chicago, included a blunt rejection of the core of Perlman's case. In an opinion written for a three-judge panel by Judge Frank Easterbrook, the court concluded that Perlman never established that a dispute over payments translated to fraud.

"Breach of contract is not fraud, and a series of broken promises therefore is not a pattern of fraud," Easterbrook said.

Perlman argued that Zell was liable to pay damages for violating the Racketeer Influenced and Corrupt Organization Act. A federal jury ruled in Perlman's favor on the issue, making Zell liable to pay about $2.9 million.

Federal Judge Ruben Castillo set aside the racketeering verdict. The appeals court upheld that ruling, finding that Perlman never offered even scant evidence to support his case.

Zell remains liable to pay Perlman about $1.4 million for the value of the partnerships. But Zell's attorney, Stephen Novack, said that money would have come to Perlman anyway.

"Zell didn't dispute that he owed the money. It was purely an issue of timing," Novack said. He said the ruling brings "almost total vindication" to Zell.

Easterbrook addressed that point in his opinion issued Aug. 2. "The nominal award of $1.4 million therefore substantially overstates the value of Perlman's victory," he wrote.

"His real success is measured by the value of the $1.4 million now and the amount he would have received had he waited, discounted to present value. Perhaps that figure is negative, but even if it is positive it is much less than $1.4 million.

"The real stakes of this case always have been the treble damages under RICO and punitive damages under state law, and on these Perlman lost," the judge wrote.