In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 12‐3235, ‐3241, ‐3281, ‐3292, 13‐1052, ‐1055–56, ‐1060,
‐1433, ‐1435, 1449–50
BCS SERVICES, INC., and PHOENIX BOND & INDEMNITY CO.,
Plaintiffs‐Appellees,
v.
BG INVESTMENTS, INC., et al.,
Defendants‐Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 05 C 4095, 07 C 1367 — Matthew F. Kennelly, Judge.
____________________
SUBMITTED JUNE 28, 2013 — DECIDED AUGUST 23, 2013
____________________
Before BAUER, POSNER, and MANION, Circuit Judges.
POSNER, Circuit Judge. These consolidated appeals are se‐
quels to our decision in BCS Services, Inc. v. Heartwood 88,
LLC, 637 F.3d 750 (7th Cir. 2011), which reversed judgments
dismissing two suits which for simplicity we treated and
will continue to treat as one. The plaintiffs, BCS Services, Inc.
2 Nos. 12‐3235, et al.
and Phoenix Bond & Indemnity Co., seek damages for mail
fraud under the Racketeer Influenced and Corrupt Organi‐
zations Act (RICO), 18 U.S.C. §§ 1961 et seq., and for interfer‐
ence with a prospective business advantage under Illinois
tort law. The ground of dismissal that we rejected when last
the case was before us was that the plaintiffs could not prove
that the defendants’ alleged wrongdoing, even if it was
proved, was a “proximate cause” of their alleged losses. 637
F.3d at 756.
When an owner of property in Cook County, Illinois,
fails to pay his property tax on time, the amount of tax past
due becomes a lien on the property. The County sells its tax
liens at auctions. The bids at the auctions are stated as per‐
centages of the taxes past due. The percentage that a bidder
bids, multiplied by the amount of past‐due taxes (plus any
interest due on them), is the “penalty” that the bidder de‐
mands from the owner to clear the lien. The winning bidder
is the bidder who bids (that is, is willing to accept) the low‐
est penalty—often zero percent of the tax due, meaning that
the bidder is offering to pay the County the entire past‐due
taxes and receive in exchange the lien.
The taxpayer has two to three years in which to erase the
lien by paying the winner of the auction (and hence new
owner of the lien) the past‐due taxes that the winner had
paid the County, plus the penalty (if any). If the taxpayer
fails to redeem by paying what he owes, the purchaser of the
lien can obtain a tax deed to the property and thus become
the property’s owner. In deciding which tax liens being auc‐
tioned to bid for and how much to bid (whether a zero per‐
cent penalty, or a 5 percent penalty, or any other percent),
the would‐be tax lienor is looking for properties whose
owners are unlikely to redeem them by paying the past‐due
Nos. 12‐3235, et al. 3
taxes during the redemption period and which are worth
more than the past‐due taxes on them.
The auctions are conducted in rapid‐fire fashion in a
room in which the bidders bid by raising a card with their
bidder ID number and shouting out the penalty percentage
that they are bidding. Almost 85 percent of the winning bids
are at the zero‐percent penalty level; that is, most bids are
identical zero‐percent bids. How is the auctioneer to pick the
winner in such a case? Because the bids are identical, the
auctioneer tries to award the lien to the bidder who raised
his hand first. But if many bidders raise their hands as soon
as the bidding begins, the auctioneer may find it impossible
to determine who raised his hand first, in which event he’ll
probably pick one of the zero‐percent bidders at random.
The County’s rules permit only one agent of a potential
buyer, or of a group of cooperating buyers (“related enti‐
ties”), to bid. Otherwise a potential buyer could increase the
likelihood of winning by packing the room. He would be
likely to have some fast hands and some ringside seats, as
well as having an advantage just by virtue of the number of
his hands, when the auctioneer threw up his hands and
awarded liens randomly among the zero‐percent bidders, or
tried to rotate them among the bidders in the interest of
“fairness.” If a company’s violation of the prohibition
against bidding by multiple bidders was concealed and thus
operated as a fraud on the one‐armed bidders (that is, the
bidders who complied with the single‐bidder rule), the com‐
pany would have engaged in a pattern of mail fraud in vio‐
lation of RICO because the County uses the mails to notify
property owners that the County has sold its tax liens on the
property and that unless the past‐due taxes are paid the
property will be forfeited to the lienor.
4 Nos. 12‐3235, et al.
The case is a little more complicated than we’ve let on so
far because several groups each composed of entities related
to each other are accused of the fraud. Only two groups re‐
main in the case, however, Sass and Gray, the others (or
their principals) having settled with the plaintiffs. Each
group should have had only one arm to bid with at each
auction session; instead each had as many arms as it had
members. Each group had (offstage) a kingpin who financed
the group’s bidding activity. When a member of the group
won a lien, the kingpin would buy it from him.
On remand from our decision reversing the district court,
the case was tried to a jury that at the end of a four‐week tri‐
al found in favor of the plaintiffs and awarded damages
against the two remaining groups totaling, after various ad‐
justments, some $7 million, to which the judge added some
$13 million in plaintiffs attorneys’ fees and related expenses.
The defendants make a number of arguments for revers‐
ing (not all of which merit discussion).
They argue that the plaintiffs were not victims of mail
fraud because they had no property interest in the tax liens
that they were prevented by the fraud from buying. The
premise is true but irrelevant. “Any person injured in his
business or property by reason of a violation of section 1962
of this chapter may sue therefor in any appropriate United
States district court and shall recover threefold the damages
he sustains … .” 18 U.S.C. § 1964(c) (emphasis added); see
also Maiz v. Virani, 253 F.3d 641, 662–64 (11th Cir. 2001);
Terminate Control Corp. v. Horowitz, 28 F.3d 1335, 1343 (2d
Cir. 1994). The plaintiffs were deprived of the profit they
would have made had the fraud not prevented them from
Nos. 12‐3235, et al. 5
being awarded as many tax liens as they would have been
awarded otherwise.
It is true that the criminal act on which the RICO claim is
based—mail fraud—requires that the defendants have ob‐
tained “money or property” by fraud. 18 U.S.C. § 1341. But
tax liens, which is what the defendants obtained, are proper‐
ty. United States v. Security Industrial Bank, 459 U.S. 70, 76–77
(1982); In re Tarnow, 749 F.2d 464, 466 (7th Cir. 1984). In this
case they are property of Cook County. The property to
which section 1341 refers need not be the plaintiffs’, provid‐
ed they are directly injured by the defendants’ unlawful ac‐
quisition of the property. See Phoenix Bond & Indemnity Co. v.
Bridge, 477 F.3d 928, 932 (7th Cir. 2007), affirmed, 553 U.S.
639 (2008); Commercial Cleaning Services, L.L.C. v. Colin Service
Systems, Inc., 271 F.3d 374, 378, 382–83 (2d Cir. 2001); Mid At‐
lantic Telecom, Inc. v. Long Distance Services, Inc., 18 F.3d 260,
260, 263 (4th Cir. 1994). As they were: the defendants took
from the City property that, had they not taken it, would
have been obtained by the plaintiffs at the same time in the
same place—the auction room.
The judge was correct to deny the defendants’ request to
instruct the jury that it could not find for the plaintiffs “if
there has been only a deprivation of intangible rights to a
fair opportunity to obtain money or property.” The instruc‐
tion was irrelevant. The plaintiffs were not complaining
about a deprivation of intangible rights, such as a right to
honest service by an agent; they were complaining about a
fraud that caused them a money loss.
The County’s rule against bids by multiple agents of the
same principal (the “single bidder” rule) defines “principal”
as the “tax‐buying entity,” a term the defendants argue
6 Nos. 12‐3235, et al.
should be limited to bidders at the tax‐lien sale, as distinct
from some distant puppet master. There’s no basis for such a
narrow definition, which would deprive the rule of any bite.
There was additional evidence that the defendants’ elabo‐
rately concealed multiple‐agent bidding scheme was contra‐
ry to the County’s policy and that the defendants knew this.
They argue that had the County known of their fraud it
might nevertheless have done nothing about it, in which
event the fraud would not have made the plaintiffs worse
off. Cf. United States v. Fenzl, 670 F.3d 778, 781 (7th Cir. 2012).
But a County official testified that the County would have
barred bidders found in violation of the single‐bidder rule.
There was also evidence that the defendants were aware of
this possibility and that it was a motive for their attempt to
conceal the fraud.
And suppose the County would not have enforced the
rule, and knowing this the defendants had not concealed
their violation of it. The plaintiffs would have raised a storm,
brought pressure to bear on the County (and what could the
County have said in defense of its refusal to enforce its rule?
It is a perfectly sensible rule), and might have sued to en‐
force the rule on the ground that they were its intended ben‐
eficiaries and had been harmed by its violation.
The defendants object to the judge’s refusing to instruct
the jury that “statements made when there is a good faith
disagreement about the applicable governing law or when
the law is unclear are not false.” That’s preposterous. A
statement can be false even though the person making it has
a good‐faith belief, even a perfectly reasonable belief, that it
is true. Good faith does negate intent to defraud, United
States v. Dunn, 961 F.2d 648, 650 (7th Cir. 1992); South Atlan‐
Nos. 12‐3235, et al. 7
tic Limited Partnership of Tennessee, L.P. v. Riese, 284 F.3d 518,
530–32 (4th Cir. 2002)—but the judge correctly so instructed
the jury.
The defendants complain about an adjustment that the
plaintiffs’ damages expert made concerning the number of
tax liens on which the plaintiffs bid in competition with the
defendants. He made the adjustment after seeing a video of
part of the 2007 auction, one of the auctions embraced by the
suit. The video revealed that the plaintiffs had not bid on all
the tax liens that their records stated they intended to bid on.
The expert revised his report to reduce his estimate of the
plaintiffs’ bids at all the auctions in the period covered by
the suit by the same percentage that the video required him
to reduce his estimate of the number of bids by each plaintiff
at the 2007 auction. The percentage reduction was 19.3 per‐
cent for BCS and 22.3 percent for Phoenix.
The defendants argue that the district judge should have
subjected this adjustment to a Daubert examination to de‐
termine whether the expert should have been permitted to
offer his revised estimate at the trial. But that would have
been a waste of time, because it is clear that the adjustment
that the expert made on the basis of the video was reasona‐
ble. What choice had he? Not knowing that they were being
defrauded, the plaintiffs had no reason to think they needed
to make and retain good records of their unsuccessful bids—
for of what use would such records have been had there
been no fraud and thus no lawsuit?
So this is a case in which defendants’ misconduct pre‐
vented the plaintiffs from calculating damages accurately—
and in such cases damages can be estimated by methods that
would be deemed impermissibly speculative in other con‐
8 Nos. 12‐3235, et al.
texts. E.g., J. Truett Payne Co. v. Chrysler Motors Corp., 451
U.S. 557, 566–67 (1981); Story Parchment Co. v. Paterson
Parchment Paper Co., 282 U.S. 555, 562–66 (1931); Haslund v.
Simon Property Group, Inc., 378 F.3d 653, 658 (7th Cir. 2004).
“Once the plaintiff proves injury, broad latitude is allowed
in quantifying damages, especially when the defendant’s
own conduct impedes quantification.” Id. Even “speculation
has its place in estimating damages, and doubts should be
resolved against the wrongdoer.” Mid‐America Tablewares,
Inc. v. Mogi Trading Co., 100 F.3d 1353, 1365 (7th Cir. 1996),
quoting Olympia Equipment Leasing Co. v. Western Union Tele‐
graph Co., 797 F.2d 370, 383 (7th Cir. 1986). Otherwise “the
more grievous the wrong done, the less likelihood there
would be of a recovery.” Bigelow v. RKO Radio Pictures, Inc.,
327 U.S. 251, 265 (1946). The unavoidable element of specula‐
tion in the adjustment of damages on the basis of the video
was within permissible bounds.
The defendants also object that the expert’s method of
calculating damages exaggerated each defendant’s proper
share. The expert divided the number of liens that the plain‐
tiffs had won by the number of liens won by all eligible bid‐
ders, thus excluding the liens won by the defendants (in‐
cluding the defendants who had settled before trial). This
procedure yielded what the expert termed the “bid win per‐
centage,” an estimate of how well the plaintiffs would have
done if the bidding had been completely honest—no multi‐
ple bidders. He then multiplied the number of liens that each
defendant had won by the bid win percentage. Since the bid
win percentage was the percentage of liens that an honest
bidder could expect to win, any lower percentage, such as
the percentage the plaintiffs won, presumably reflected the
unfair competition of the multiple bidders.
Nos. 12‐3235, et al. 9
Each defendant argues that in computing the bid win
percentage the expert should have excluded the defendants
one by one rather than as a group. For example, the expert
calculated the bid win for plaintiff BCS at the 2003 auction to
have been 12.45 percent. Defendant Gray argues that it
should have been 5.2 percent. (The lower the percentage, the
lower BCS’s damages, because its damages are based on its
failure to have obtained the bid win percentage—the per‐
centage it could expect to win in a non‐rigged auction of tax
liens.) Gray arrives at that figure by dividing the number of
liens won by BCS not by the number of liens won by all hon‐
est bidders but by the number won by all bidders minus
Gray—a group that includes other multiple bidders. That’s
an improper procedure, because it depresses BCS’s (and
Phoenix’s) bid win percentages by bids won by dishonest as
well as honest bidding methods.
The plaintiffs’ state law claim was for tortious interfer‐
ence with a business opportunity, and the jury awarded pu‐
nitive damages for the tort. The defendants argue that this
was double counting, because the damages for the same ac‐
tivity that were awarded for the defendants’ violation of
RICO were treble the loss that the violation had inflicted on
the plaintiffs, yet the same acts had been charged as viola‐
tions both of RICO and of state tort law. To this the plaintiffs
respond that damages are trebled under RICO not as pun‐
ishment but because the ordinary methods of calculating
compensatory damages undercompensate. And so the Su‐
preme Court has held. PacifiCare Health Systems, Inc. v. Book,
538 U.S. 401, 405–06 (2003); Cook County v. United States ex rel.
Chandler, 538 U.S. 119, 129–31 (2003); Shearson/American Ex‐
press, Inc. v. McMahon, 482 U.S. 220, 240–41 (1987); see also
Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1310 n. 8 (7th Cir.
10 Nos. 12‐3235, et al.
1987). The holding can be questioned. It’s true that under‐
compensation is one of the reasons for awarding punitive
damages, Mathias v. Accor Economy Lodging, Inc., 347 F.3d
672, 676–77 (7th Cir. 2003), though the main reason is pun‐
ishment (deterrence). But even if the methods used to calcu‐
late compensatory damages systematically undercompen‐
sate plaintiffs, it can’t be right that in RICO cases those
methods always yield exactly one third of the damages actu‐
ally sustained by a plaintiff, in which event trebling would
indeed be necessary to provide him with full compensation.
But of course we’re bound by the Supreme Court’s interpre‐
tation of RICO’s treble‐damages remedy as being compensa‐
tory rather than punitive, and this defeats the defendants’
argument.
Sass makes a somewhat related argument, that the dis‐
trict judge violated the “one‐satisfaction” rule by not allow‐
ing Sass to set off against its damages liability the full
amount that the plaintiffs received in settlement of claims
against other participants in the tax‐lien fraud. The judge did
allow a setoff, but only after deducting his estimate of how
much of the total amount of the settlements was in respect of
liability to pay punitive damages, pursuant to the rule that
money paid in settlement of punitive damages claims is not
subject to setoff. Bosco v. Serhant, 836 F.2d 271, 281 (7th Cir.
1987); Ratner v. Sioux Natural Gas Corp., 719 F.2d 801, 804 (5th
Cir. 1983). The one‐satisfaction rule is intended to prevent
compensation in excess of the plaintiff’s loss; punitive dam‐
ages, to the extent not intended to remedy undercompensa‐
tion, are deliberately excess compensation.
The district judge set off more than half the settlement
payments against the damages awarded at trial. The jury
had awarded the plaintiffs both untrebled compensatory
Nos. 12‐3235, et al. 11
damages and punitive damages, the latter limited to the
state law claim for tortious interference with the plaintiffs’
chances for buying tax liens at the auctions. Of the total
damages awarded by the jury 46 percent represented puni‐
tive damages, the other 54 percent compensatory damages,
and it was the latter percentage that the judge used to decide
what percentage of the settlement moneys received by the
plaintiffs should be set off against the judgment. The de‐
fendants point out that the 46 percent allocation to punitive
damages dropped to 9.6 percent when, after the jury deliv‐
ered its verdict, the judge trebled the compensatory damages
that the jury had awarded for the RICO violations and add‐
ed attorneys’ fees and costs (without these additions the pu‐
nitive damages would have dropped from 46 to 22.1 percent
of the total settlement moneys). And remember that the en‐
tire trebled damages are deemed compensatory. The settle‐
ments do not distinguish between punitive and compensato‐
ry damages. But since the settling parties must have foreseen
that damages awarded by the jury for the RICO violations
would be trebled and that the plaintiffs would be entitled to
an award of attorneys’ fees and costs, a more realistic guess
was that a shade more than 90 percent of the settlement
amount was the settling parties’ estimate of a likely award of
compensatory damages if the case went to trial.
That is not a bad argument, but it is vitiated by the de‐
fendants’ refusal to acknowledge the implication that 9.6
percent of the amount of the settlement should not be sub‐
tracted from the judgment. They insist that because the set‐
tlement agreements do not mention punitive damages the
entire amount of the settlements must be compensatory.
That’s wrong. The parties negotiating the settlements were
sophisticated and must have been aware that an award of
12 Nos. 12‐3235, et al.
punitive damages for fraud would be likely if there were a
trial. That awareness would influence the amount of the set‐
tlement.
An appellant cannot prevail by making an unreasonable
argument while forfeiting the only reasonable one he could
have made.
Last the defendants complain about the amount of attor‐
neys’ fees and expenses that the district judge awarded the
plaintiffs. They argue that the award includes fees that the
plaintiffs’ lawyers expended in investigating other actually
or possibly ineligible bidders at the tax‐lien auctions in
which the plaintiffs participated. Yet these investigations
were essential. Without them the plaintiffs would not have
known whether the harm they suffered was attributable on‐
ly to the defendants or to others as well, in which case they
would not be entitled to as large a damages award from the
defendants. See Uniroyal Goodrich Tire Co. v. Mutual Trading
Corp., 63 F.3d 516, 526 (7th Cir. 1995); Baughman v. Wilson
Freight Forwarding Co., 583 F.2d 1208, 1215 (3d Cir. 1978);
Rode v. Dellarciprete, 892 F.2d 1177, 1185 (3d Cir. 1990).
The defendants further argue that the plaintiffs should
have been required to allocate a portion of their attorneys’
fees to the settlements they made with other parties accused
of ineligible bidding. That would be correct if the settlements
had reduced the injury that the defendants’ ineligible bid‐
ding had inflicted on the plaintiffs, for then the fees would
have been allocable, in part anyway, to the present suit. But
the judge found, not clearly erroneously, that the injuries
were separate.
And finally we reject as did the district court the argu‐
ment that the fee award was excessive because it was almost
Nos. 12‐3235, et al. 13
twice the damages awarded the plaintiffs at trial. Plaintiffs
cannot know in advance how much they’ll win at a trial, or
how elaborate a defense the defendants will mount, and so
they cannot estimate with any precision either the cost of
winning or whether they will win. The plaintiffs asked the
jury for roughly twice the compensatory damages that the
jury awarded them, and if that was a reasonable albeit un‐
successful request, the legal fees and costs that they incurred
were not unreasonable.
How much the plaintiffs would have to spend on the liti‐
gation would depend in part on the stubbornness of the de‐
fense—and it turned out to be enormously though futilely
stubborn. Attorney fee shifting, as under RICO, is intended
to facilitate suit by victims of unlawful behavior, see, e.g.,
Agency Holding Corp. v. Malley‐Duff & Associates, Inc., 483
U.S. 143, 151 (1987); PrimeCo Personal Communications, Lim‐
ited Partnership v. City of Mequon, 352 F.3d 1147, 1152 (7th Cir.
2003), and awarding legal fees reasonably incurred ex ante
even if excessive‐seeming ex post (which is to say with the
wisdom of hindsight) is necessary to achieve that objective.
See City of Riverside v. Rivera, 477 U.S. 561, 573–76, 578 (1986)
(plurality opinion); FMC Corp. v. Varonos, 892 F.2d 1308,
1316–17 (7th Cir. 1990). The defendants were hyperaggres‐
sive adversaries. They drove up the plaintiffs’ legal costs
without justification.
AFFIRMED.