Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-07171/USCOURTS-caDC-99-07171-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 27, 2000 Decided May 30, 2000

No. 99-7171

BCCI Holdings (Luxembourg), S.A., et al.,

Appellees

v.

Abdul Raouf Hasan Khalil,

Appellant

Appeal from the United States District Court

for the District of Columbia

(No. 95cv01252)

Stephen R. Johnson argued the cause for appellant. With

him on the briefs were James P. Linn and T. Jay Barrymore.

Eric L. Lewis argued the cause for appellees. With him on

the brief was A. Katherine Toomey.

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Before: Edwards, Chief Judge, Henderson and Rogers,

Circuit Judges.

Opinion for the Court filed by Chief Judge Edwards.

Edwards, Chief Judge: This case involves a civil action

resting on the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. ss 1961, et seq. (1994), common

law fraud, unjust enrichment, and conversion. The lawsuit

was brought by appellees, fiduciaries appointed on behalf of

the Bank of Credit and Commerce International ("BCCI") to

liquidate the principal BCCI holdings and recover assets on

behalf of depositors and innocent creditors, against appellant,

Abdul Raouf Hasan Khalil, and three co-conspirators. The

District Court found Mr. Khalil liable on many, but not all, of

the claims arising under RICO, common law fraud, unjust

enrichment, and conversion. The total non-duplicative

amount of actual damages entered in favor of appellees

against Mr. Khalil was $388,402,534. The District Court

trebled this amount pursuant to 18 U.S.C. s 1964(c) (1994),

for a total judgment of $1,165,207,602 against Mr. Khalil.

On appeal, Mr. Khalil raises two principal issues: First,

Mr. Khalil claims that the District Court erred under Federal

Rules of Civil Procedure 39(b) in denying his late request for

a jury trial; second, Mr. Khalil contends that the District

Court erred in holding that appellant's alleged RICO and

common law tort violations were the legal cause of BCCI's

losses. With one exception, we find no merit in Mr. Khalil's

arguments.

Appellant's disputed motion for a jury trial was filed more

than a year late, after discovery had been concluded and after

a trial date had been set. The trial judge denied the motion

because of prejudice to the plaintiff, who had prepared for a

bench trial. The trial judge also noted that expediency would

be served in holding to the existing trial schedule, to avoid

undue delay and potential complications with other trials

involving related issues. In short, the District Court found

that counsel's inexcusable neglect in failing to request a jury

trial in a timely fashion waived defendant's right to a jury

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trial. We find no error in this judgment, for the trial judge

acted within the discretion afforded him under Rule 39(b).

We also affirm most of the District Court's judgments on

the merits. As the court's opinion indicates, see BCCI Holdings (Luxembourg), Societe Anonyme v. Khalil ("Khalil"), 56

F. Supp. 2d 14 (D.D.C. 1999), there is ample evidence in the

record to show but-for and proximate causation, supporting

most of the judgments on the RICO and the common law tort

claims. We can find no record evidence, however, to support

the District Court's finding that Mr. Khalil is liable to BCCI

for damages in the amount of $62,021,193 for certain silver

and copper trading losses.

We reverse the District Court's judgment for damages

resting on the silver and copper trading losses. We affirm

the District Court's judgment on all other points. The case

will be remanded for the District Court to recalculate the

damages that are due to appellees.

I. Facts

This lawsuit was spawned by BCCI's international collapse,

which was the largest international bank failure in history.

See Khalil, 56 F. Supp. 2d at 20. BCCI's court-appointed

liquidators filed a complaint on July 3, 1995 to recover

damages suffered by BCCI as a result of Mr. Khalil's alleged

violations of RICO, common law fraud, unjust enrichment,

and conversion. The liquidators charged that Mr. Khalil

participated in a conspiracy with BCCI's management that

allowed BCCI secretly to acquire ownership and maintain

control of First American Corporation and First American

Bankshares, Inc. (collectively "First American"). This illegal

scheme operated through the use of nominee shareholders--

like Mr. Khalil--who allowed BCCI to hide financial losses

from bank regulators.

Mr. Khalil is a wealthy Saudi Arabian businessman and

former government official who deposited large amounts of

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money in BCCI. He may have been BCCI's largest depositor. See id. at 21. In their complaint, the liquidators claimed

that, in the late 1970s and 1980s, BCCI's former management

sought out Mr. Khalil and paid him large sums of money in

exchange for the use of his name and prestige to disguise

three schemes: (1) Mr. Khalil agreed to act as a nominee

shareholder of First American Bank's parent corporation to

disguise BCCI's illegal acquisition of an American bank without required regulatory approval; (2) Mr. Khalil agreed to

serve as a nominee shareholder of BCCI Holdings to disguise

the truth about BCCI's artificially and misleadingly inflated

capital resources and support; and (3) Mr. Khalil agreed to

allow BCCI to use his name, both individually and on behalf

of his corporations, to disguise risky investments and to

create the false impression that BCCI was servicing large

loans that were actually in default. See id. The liquidators

contended that Mr. Khalil's assent to these schemes prevented BCCI's true financial condition from becoming apparent

much earlier, stopped BCCI from closing down much sooner,

and thus precipitated significant financial losses for thousands

of creditors and depositors.

Not all of the liquidators' claims against Mr. Khalil rested

on a passive view of Mr. Khalil's relationship with BCCI.

The liquidators also asserted that Mr. Khalil and Mr. Syed

Ziauddin Ali Akbar conspired to loot BCCI's assets so that

they could create and fund a commodities brokerage that they

called Capcom UK. Mr. Akbar, who was a BCCI officer from

1976 to 1986 and was in charge of BCCI's Treasury Division

from 1982 to 1986, created loans in BCCI's books to Mr.

Khalil and his companies. Mr. Akbar never intended, however, for these loans to be repaid. In particular, between

October 1984 and December 1984, Mr. Akbar transferred

$100,000,000 to Capcom that was not authorized by Mr.

Akbar's superiors. Mr. Akbar also transferred $25,000,000 to

Capcom in June 1985 and $136,000,000 to Capcom between

January and April 1986. See id. at 42-43. For his part, on

August 20, 1985, Mr. Khalil negotiated a $12.5 million check

from BCCI as a payment for his share of the "profits" from

the trading operations, received a $15 million "parting gift"

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on July 3, 1987 that he had cajoled when he withdrew his

deposits from BCCI, and, on June 25, 1987, coaxed a $17,000,-

000 "loan" from BCCI to General Securities Corp., a company

co-owned by Mr. Khalil and Mr. Akbar that had an account at

Capcom. See id. at 43-45.

Mr. Khalil does not disavow this general characterization of

the facts. And he does not claim that he was innocent. His

appeal is based on two much more narrow grounds. The first

ground centers on the District Court's denial of Mr. Khalil's

request for a jury trial. The liquidators filed their complaint

on July 3, 1995, and Mr. Khalil filed his answer on February

10, 1997. Subsequently, on April 21, 1998, the parties had a

status conference and agreed to schedule a bench trial to

begin on January 25, 1999. On April 24, 1998, Mr. Khalil's

attorney filed a motion for a jury trial, claiming that counsel

had inadvertently omitted a jury demand from Mr. Khalil's

answer to the complaint. Under Fed. R. Civ. P. 38(b), the

jury demand was over a year late; it was therefore deemed

"waived" under Fed. R. Civ. P. 38(d). Mr. Khalil's attorney

argued, however, that the tardy demand for a jury trial could

be granted by the District Court under Fed. R. Civ. P. 39(b).

On October 8, 1998, guided by the Supreme Court's decision in Pierce v. Underwood, 487 U.S. 552, 562 (1988), the

District Court denied Mr. Khalil's motion for a jury trial.

The court found that (1) Mr. Khalil's lawyer's claimed inadvertent omission was not excusable, given that counsel had

taken so long to discover the omission, discovery was complete, the deadline for motions had passed, and the court and

the opposing party had prepared for a bench trial; (2)

plaintiffs would be significantly prejudiced if the court were

to grant Mr. Khalil's tardy request for a jury trial, because

plaintiffs had premised many of their decisions in discovery

upon their understanding that there would be a bench trial;

(3) a bench trial would be much more efficient than a jury

trial; (4) granting Mr. Khalil's motion would translate into

delays for other litigants awaiting trial; (5) given Mr. Khalil's

poor health, the court would be ill-advised to delay Mr.

Khalil's case pending resolution of the other cases; and (6)

there was no real threat of bias or prejudice, even though the

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court had presided over related criminal and civil cases. See

BCCI Holdings (Luxembourg), Societe Anonyme v. Khalil,

Civ. Act. No. 95-1252, Mem. Op. (D.D.C. Oct. 8, 1998) ("Mem.

Op."), reprinted in Joint Appendix ("J.A.") 277.

The issues on the merits raised by Mr. Khalil focus on the

District Court's award of damages and the underlying findings of causation. The District Court generally agreed with

the liquidators that Mr. Khalil was liable for receiving money

for his participation in the various nominee schemes, though

the trial court did not accept all of the liquidator's claims. In

particular, the court found that Mr. Khalil was liable for

$27,500,000 that he received as direct payments from BCCI

for his participation in the nominee schemes, $15,249,283 that

BCCI paid for Mr. Khalil's expenses, $47,069,808 that BCCI

paid to Mr. Khalil's companies, an additional $236,562,250

that BCCI sent to Capcom, and $62,021,193 that represented

the losses that BCCI suffered from silver and copper trading

that involved and was facilitated by accounts in Mr. Khalil's

name. The final result was that the liquidators were awarded

damages of $388,402,534, which were tripled to $1,165,207,602

pursuant to 18 U.S.C. s 1964(c). See Khalil, 56 F. Supp. 2d

at 66-69. This appeal followed.

II. Discussion

A. Standard of Review

The parties agree that the standard of review covering the

District Court's denial of Mr. Khalil's Rule 39(b) motion for a

jury trial is abuse of discretion. The parties also agree that

the findings on the claims based on common law fraud, unjust

enrichment, and conversion are reviewed under the clearly

erroneous standard. The parties disagree, however, over the

standard of review covering the findings of proximate cause

under RICO.

On this last point, we find the Supreme Court's decision in

Exxon Co., U.S.A. v. Sofec, Inc., 517 U.S. 830, 840-41 (1996),

to be persuasive. In Sofec, the Court explained that "[t]he

issues of proximate causation and superseding cause involve

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application of law to fact, which is left to the factfinder,

subject to limited review." Id. Mr. Khalil argues that Sofec

is inapposite, because the standard enunciated there is limited

to admiralty cases. There is nothing in the Court's opinion,

however, that so narrows its applicability. It seems clear

here, just as in Sofec, that findings on proximate causation

involve mixed questions of law and fact subject to limited

review. In any event, even if we were to engage in de novo

review, as Mr. Khalil suggests, our judgments on the matters

in issue would not change.

B. The Jury Issue

Mr. Khalil's jury-demand argument is specious. Mr. Khalil

did not file a jury demand either when the liquidators filed

their complaint on July 3, 1995 or when he filed his answer to

the complaint on February 10, 1997. It took almost three

years from the filing of the complaint and more than a year

after the filing of the answer for Mr. Khalil to bring it to the

District Court's attention that he wanted a jury trial. By

then, the trial court had scheduled the case for a bench trial,

discovery had been extended and closed, and the deadline for

motions had already passed.

Federal Rule of Civil Procedure 38 is clear that a party

waives his right to a trial by jury if he does not "(1) serv[e]

upon the other parties a demand therefor in writing at any

time after the commencement of the action and not later than

10 days after the service of the last pleading directed to such

issue, and (2) fil[e] the demand as required by Rule 5(d)."

Fed. R. Civ. P. 38. A party who fails to make a timely request

for a jury trial may avoid waiver and secure a jury trial only

if the District Court "in its discretion" acts favorably on such

a request. Fed. R. Civ. P. 39(b).

Under Rule 39, a trial court may abuse its discretion in

denying a late request for a jury trial. This does not mean,

however, that a trial court must indulge a presumption in

favor of the neglectful party when faced with a late demand.

Thus, a trial court is not required to grant a Rule 39(b)

request based on nothing but inadvertence, because,

"[t]hough the court might, in its discretion, have ordered a

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jury trial, it [is] under no obligation to do so." May v.

Melvin, 141 F.2d 22 (D.C. Cir. 1944); see also Wall v.

National R.R. Passenger Corp., 718 F.2d 906, 910 (9th Cir.

1983) ("The record does not demonstrate any reason, other

than counsel's inadvertence, for the failure to comply with

rule 38(b). The district judge did not abuse his discretion.");

Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148, 1154 (5th Cir.

Unit A 1981) (finding even under a presumption in favor of

granting untimely jury demands that "[i]t is not an abuse of

discretion by a District Judge to deny a Rule 39(b) motion

... when the failure to make a timely demand for a jury trial

results from mere inadvertence on the part of the moving

party"); Paramount Pictures Corp. v. Thompson Theatres,

Inc., 621 F.2d 1088, 1090 (10th Cir. 1980) ("By failing to make

a timely demand defendants waived their rights. The trial

court then has the discretion, upon motion, to order trial by

jury. That discretion is broad, and the court's exercise, either

to grant or to deny a jury trial, is reversible only if it appears

from all of the facts and circumstances that the court abused

its discretion." (internal citations omitted)).

In this case, mere inadvertence is the only leg upon which

Mr. Khalil can stand, and it is at best a very weak base. Mr.

Khalil does not deny that he waived his right to a jury.

Rather, he claims that despite his mistake, the burden should

be on the opposing party to present strong and compelling

reasons why the late demand for a jury trial should not be

granted. This is not what Rule 39 says, however. The rule

merely states that, upon motion from a party like Mr. Khalil,

the District Court "may" (not shall) "in its discretion" order

a trial by jury. Absent an abuse of discretion by the trial

court, a defaulting party who has already waived the right to

a jury trial under Rule 38(d) has no viable claim. This does

not mean that a trial court can simply ignore a Rule 39(b)

motion or whimsically deny it for no good reason. But trial

courts have wide latitude under the abuse of discretion standard to weigh the merits of late demands for jury trials.

The District Court's judgment in this case easily survives

review under the abuse of discretion standard. The District

Court reasonably considered the factors enunciated by the

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Supreme Court in Pierce v. Underwood, 487 U.S. 552. In

Pierce, the Court noted that,

[o]ver the years, appellate courts have consistently upheld the trial judges in allowing or refusing latedemanded jury trials, but in doing so have laid down two

guidelines for exercise of the discretionary power. The

products of cumulative experience, these guidelines relate to the justifiability of the tardy litigant's delay and

the absence of prejudice to his adversary.

Id. at 562. Following the Pierce Court's lead, the District

Court found that Mr. Khalil's delay was not justified, because

it was the product of mere inadvertence, and "where the

length of time to discover the error is as long as here, where

discovery is complete and the motions' deadline has passed,

and where the Court and the opposing party have come to

rely on a bench trial, this factor weighs against granting a

trial by jury." Mem. Op. at 8, reprinted in J.A. 284. The

trial court also reasonably found that BCCI had made a

"plausible and specific enough showing of prejudice." Id. at

9, reprinted in J.A. 285. In short, we have no basis upon

which to second-guess the judgment of the District Court.

C. Proximate Causation

On the merits of this case, Mr. Khalil first posits that the

District Court's standard of proximate cause under RICO was

too lax. He argues that "a RICO claimant must prove that

he was the 'intended target' of the RICO scheme and that the

alleged injury was the 'preconceived purpose' of the RICO

activity." Br. of Appellant at 35. In our view, appellant's

argument on this point is simply wrong.

In Holmes v. Securities Investor Protection Corp., 503 U.S.

258 (1992), which involved a civil action under RICO, the

Court considered the meaning of the statutory phrase--

"[a]ny person injured in his business or property by reason of

a [RICO] violation"--found in 18 U.S.C. s 1964(c). The

Court's discussion is illuminating:

This language [18 U.S.C. s 1964(c)] can, of course, be

read to mean that a plaintiff is injured "by reason of" a

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RICO violation, and therefore may recover, simply on

showing that the defendant violated s 1962, the plaintiff

was injured, and the defendant's violation was a "but for"

cause of plaintiff's injury. This construction is hardly

compelled, however, and the very unlikelihood that Congress meant to allow all factually injured plaintiffs to

recover persuades us that RICO should not get such an

expansive reading.

... Congress modeled s 1964(c) on the civil-action provision of the federal antitrust laws, s 4 of the Clayton Act.

... [W]e [have] held that a plaintiff's right to sue under

s 4 required a showing that the defendant's violation not

only was a "but for" cause of his injury, but was the

proximate cause as well.

The reasoning applies just as readily to s 1964(c)....

Proximate cause is thus required [under RICO].

Id. at 265-68.

The Court in Holmes defined proximate cause as essentially reflecting "ideas of what justice demands, or of what is

administratively possible and convenient." Id. at 268. Proximate cause exists to ensure that a random third party who

suffers "merely from the misfortunes visited upon [him] by

the defendant's acts" does not recover. Id. It also ensures

that courts do not get ensnared in administratively complex

questions over factual causation and apportionments of damages. The Court reasoned that a proximate cause requirement would sufficiently deter injurious conduct, because "directly injured victims can generally be counted on to vindicate

the law as private attorneys general, without any of the

problems attendant upon suits by plaintiffs injured more

remotely." Id. at 269-70. The Court never suggests, however, that the only or best way to prove proximate cause is for a

plaintiff to prove he was the "intended target" and that the

injury was the "preconceived purpose" of the RICO activity.

We therefore reject appellant's highly restrictive reading of

RICO.

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With one exception, the record in this case offers ample

evidence to support the District Court's findings that Mr.

Khalil was the proximate cause of RICO injuries suffered by

BCCI, as well as the District Court's findings of common law

violations. The District Court's judgments on these points

are well-explained in its published opinion; that opinion needs

no revision, save for one point.

The one exception centers on the $62,021,193 in silver and

copper trading losses that the District Court found were

directly linked to the use of Mr. Khalil's name. Unlike the

other payments, which are directly traceable to Mr. Khalil's

fees for participating in the nominee scheme, the silver and

copper trading losses are much more contingent on other

factors. Without much other analysis, the trial court reasoned that, "[a]lthough market conditions played an important role in bringing those losses about, the use of Khalil's

name remained a substantial factor causing those losses.

These losses can be traced directly to the fraudulent use of

Khalil-owned companies." Khalil, 56 F. Supp. 2d at 61. The

District Court and appellees seem to claim that the bank's

losses would have been prevented or reduced had the bank

known about the futures trading at issue. In particular, they

suggest that the Board of Directors had placed limits on

investments and that Khalil facilitated the avoidance of these

limits by lending his name to fraudulent endeavors, thus

causing the bank to suffer losses. We can find no record

evidence demonstrating that this specific set of losses is

directly traceable to the ability of the perpetrators to hide the

losses in Mr. Khalil's name. We therefore reverse the judgment against Mr. Khalil resting on the disputed silver and

copper trading losses.

III. Conclusion

We reverse the judgment of the District Court resting on

the silver and copper trading losses. We affirm the judgment

of the District Court in favor of appellees on all other points.

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The case is hereby remanded to the District Court to recalculate the damages that are due to appellees.

So ordered.

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