Source: https://law.justia.com/cases/federal/appellate-courts/F2/924/1114/224020/
Timestamp: 2020-08-08 21:30:04
Document Index: 398213950

Matched Legal Cases: ['§ 1961', '§ 1961', '§ 1503', '§ 1961', '§ 1332', '§ 1343']

Pyramid Securities Limited, Appellant, v. Ib Resolution, Inc, 924 F.2d 1114 (D.C. Cir. 1991) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › D.C. Circuit › 1991 › Pyramid Securities Limited, Appellant, v. Ib Resolution, Inc
Pyramid Securities Limited, Appellant, v. Ib Resolution, Inc, 924 F.2d 1114 (D.C. Cir. 1991)
U.S. Court of Appeals for the District of Columbia Circuit - 924 F.2d 1114 (D.C. Cir. 1991) Argued Oct. 29, 1990. Decided Feb. 1, 1991. Rehearing En Banc Denied March 25, 1991
Pyramid Securities Ltd. brought suit in district court against International Bank, claiming that it was liable under RICO, the Racketeer Influenced and Corrupt Organizations statutes, 18 U.S.C. §§ 1961, 1962(c), (d),1 and under the common law, for acts allegedly performed by its Cayman Islands subsidiary, Washington International Bank and Trust, Ltd. The district court granted summary judgment for the defendant, finding that the alleged acts did not satisfy RICO's requirement of a "pattern" of racketeering activities and that the statute of limitations had run on the common law claims. Pyramid Securities v. International Bank, 726 F. Supp. 1377 (D.D.C. 1989). IB Resolution, Inc., successor of International Bank by merger, has been substituted as defendant in this court. We affirm.
After considerable discovery the defendant filed a motion to dismiss the complaint, which the court treated as one for summary judgment. See Fed. R. Civ. P. 56(c). The court granted the motion, finding that there was an insufficient "pattern" to sustain the RICO claims. Although finding no diversity of citizenship, it went on to treat the state law claims and found them time-barred.
As the court granted summary judgment, we must decide whether a jury could reasonably have found for Pyramid on the record before the district court; although we must resolve all serious conflicts of evidence in Pyramid's favor, a mere scintilla in its favor is not enough to defeat the motion. See Riddell v. Riddell Washington Corp., 866 F.2d 1480, 1484-85 (D.C. Cir. 1989). We start with the RICO claims.
A violation of RICO Sec. 1962(c) consists of "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 3285, 87 L. Ed. 2d 346 (1985) (footnote omitted). Pyramid argues that International Bank (through its subsidiary Washington International), Duggan, Pearson, and Hutton had formed an enterprise (or "association-in-fact") for the legitimate trading of securities long before the events at issue in this case, and that this enterprise conducted "racketeering activity" in the form of securities fraud, mail fraud, wire fraud, and obstruction of justice.
In H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989), the Supreme Court set out limits on what could constitute a RICO pattern. Apart from the minimum of two predicate acts required by RICO's text, the plaintiff or prosecutor "must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." 109 S. Ct. at 2900 (emphasis added).
Where there is no threat of further racketeering, H.J. states that "acts extending over a few weeks or months" are not enough. 109 S. Ct. at 2902. Here the securities fraud lasted three months, from early September to late November 1981. Similarly, assuming that a conspiracy to violate securities fraud laws is also a predicate offense under RICO, see United States v. Weisman, 624 F.2d 1118, 1123-24 (2d Cir. 1980), any such conspiracy ended with the abandonment of the churning when Attridge returned to the Cayman Islands.
Pyramid apparently argues that Washington International extended the "conspiracy" through 1984 or 1985 by "concealing" its knowledge of (and alleged participation in) the churning. But the Supreme Court held long ago that a conspiracy generally ends when the design to commit substantive misconduct ends; it does not continue beyond that point "merely because the conspirators take steps to bury their traces, in order to avoid detection and punishment after the central criminal purpose has been accomplished." Grunewald v. United States, 353 U.S. 391, 405, 77 S. Ct. 963, 974, 1 L. Ed. 2d 931 (1957). After-the-fact concealment "indicate [s] nothing more than that the conspirators do not wish to be apprehended--a concomitant, certainly, of every crime since Cain attempted to conceal the murder of Abel from the Lord." Id. at 406, 77 S. Ct. at 974.
While Grunewald holds open the possibility that concealment could extend a conspiracy if the conspirators expressly plotted it in advance of the substantive crimes, it imposes an almost insurmountable evidentiary hurdle--"direct evidence [of] an express original agreement among the conspirators to continue to act in concert in order to cover up, for their own self-protection, traces of the crime after its commission." Id. at 404, 77 S. Ct. at 973; see also W. LaFave & A. Scott, Criminal Law Sec. 6.5, at 557 (2d ed.1986) (proof "virtually impossible"). Pyramid has produced nothing resembling such evidence.
Specifically, Pyramid argues that Washington International committed mail fraud (a RICO predicate act, see 18 U.S.C. § 1961(1) (B)) on March 3, 1982 when it sent Pearson a letter asking her for copies of "statements of the [Pyramid] account" and said it had not received any since June 30, 1981. See J.A. 662. Since Washington International obviously could not have meant to defraud Pearson, Pyramid ventures the suggestion that it sent the letter solely so that it could later give Pyramid a copy (as it later did, in response to a request from Attridge), thereby feigning innocence.
This claim is enormously creative. First, Pyramid's smoking gun--Washington International's "secret" ledger book--proves that someone at Washington International had received notice of the churning (perhaps in the form of confirmation slips), not that it had received "statements" of the Pyramid account, a phrase presumably referring to brokers' conventional monthly statements. Pyramid has offered not a shred of evidence that the bank had received such statements, and thus no evidence that the March 3, 1982 letter could have been intended to advance a fraudulent scheme by lulling Pyramid into some false assumption. Second, even if the bank had received Pyramid's account statements, the natural explanation for the letter is bank sloppiness, not conspiracy. To suggest that Washington International wrote the letter in anticipation of Pyramid's later request, and thus the chance to fool Pyramid, smacks of the paranoid. Finally, we note that the letter was sent within six months of the start of the churning; that may or may not be enough to overcome H.J.'s statement rejecting "acts extending over a few weeks or months".4 See 109 S. Ct. at 2902.
Pyramid further argues that Washington International committed mail fraud on October 21, 1983, when at Pyramid's request it mailed Pyramid copies of the bank's correspondence with Hutton, which Pyramid needed to pursue its Hutton litigation. Again Pyramid shows neither the falsity of the letters nor any other way in which the bank's response to Pyramid could plausibly be viewed as advancing a scheme to defraud. In any event, because the letter gives every evidence of having travelled only within the Cayman Islands, as Pyramid appears to concede, Appellant's Reply Br. 3 n. 3, it does not satisfy Sec. 1341's requirement of use of the US mails. See, e.g., U.S. v. Dray, 901 F.2d 1132, 1135 (1st Cir. 1990); U.S. v. Wosepka, 757 F.2d 1006, 1010 (9th Cir. 1985).
Pyramid also charges that throughout its Hutton litigation, Washington International employees, including Duggan, lied in depositions about their first-hand knowledge of the churning. As perjury is not a predicate offense under RICO, see, e.g., U.S. v. Williams, 874 F.2d 968, 973 n. 17 (5th Cir. 1989), Pyramid argues that these statements, assuming them to be lies, constituted obstruction of justice by Washington International in violation of 18 U.S.C. § 1503. See also 18 U.S.C. § 1961(1) (B).
Pyramid merely cites Sec. 1503, as though the bank employees' testimony were self-evidently a violation--and one by Washington International. Presumably Pyramid refers to the section's prohibition of attempts "to influence, obstruct, or impede, the due administration of justice". To constitute such a violation, the defendant must have acted with the "specific intent to impede the administration of justice", Williams, 874 F.2d at 980; see also Melton v. City of Oklahoma, 879 F.2d 706, 732 (10th Cir.), reh'g en banc granted on unrelated issues, 888 F.2d 724 (10th Cir. 1989); United States v. McComb, 744 F.2d 555, 561 (7th Cir. 1984), and there must have been "a pending judicial proceeding [which the defendant] knew of and sought to influence, impede, or obstruct". United States v. Capo, 791 F.2d 1054, 1070 (2d Cir. 1986), modified on rehearing in other respects, 817 F.2d 947 (2d Cir. 1987) (en banc); see also United States v. Smith, 729 F. Supp. 1380, 1383 (D.D.C. 1990) (citing cases).
Finally, again on the premise that conspiracy to violate the securities fraud laws is a RICO predicate act, Pyramid may be invoking the doctrine that concealment activities can prolong a conspiracy if they make it easier to commit future substantive offenses or complete ongoing ones--as where kidnappers conceal their whereabouts while waiting for ransom. See Grunewald, 353 U.S. at 405, 77 S. Ct. at 974. But as we develop below in consideration of the theory of an "open-ended" pattern, Pyramid has failed to support its claim that Washington International ever plotted to participate in any criminal activity other than the churning that ended in November 1981 (assuming it did even that).
Pyramid argues that Washington International's activities posed a "threat of continued criminal activity". See H.J., 109 S. Ct. at 2900. The Supreme Court has not defined the bounds of this "open-ended" pattern, but its illustrations indicate a requirement of far more than a hypothetical possibility of further predicate acts. One example is of a "hoodlum" who sells " 'insurance' to a neighborhood's storekeepers to cover them against breakage of their windows, telling his victims he would be reappearing each month to collect the 'premium' that would continue their 'coverage.' " Id. at 2902. The others are of "a long-term association that exists for criminal purposes", and of cases where the predicate acts "are a regular way of conducting defendant's ongoing legitimate business ... or of conducting or participating in an ongoing and legitimate RICO 'enterprise.' " Id.
Pyramid suggests that Washington International entered into some sort of partnership with Hutton and Pearson to commit RICO acts as "a regular way of conducting [their] ongoing legitimate business." Its theory is that if Attridge had never discovered the churning, the bank would have continued to defraud both Pyramid--and others. But Pearson, the only person shown to have actively participated in the churning and apparently the only one with any financial incentive to do so, could not have expected to continue manipulating Pyramid's account after Attridge returned from his honeymoon in November 1981. Attridge himself testified that before his wedding he checked Pyramid's portfolio on a daily basis. Indeed, immediately upon his return, he checked his account and found that things had gone awry. J.A. 457 (" [T]he assistant read off a list of stocks, and right away I knew that those were not my stocks."). Only the long honeymoon gave Pearson her opportunity. Nor is there any merit in Pyramid's effort to discern a conspiracy to defraud others in Attridge's testimony that he " [knew] of Mr. Duggan being aware that there was [sic] problems with Pearson with other customers of the bank." J.A. 500. Attridge offered no clue either as to how he had acquired this supposed knowledge about Duggan's state of mind nor the nature of the "problems with Pearson", which could mean almost anything. If threats as ephemeral as this could meet the continuity requirement, the Court's entire discussion in H.J. would impose no minimum on the "pattern" required for RICO.
After dismissing the RICO claims, the district court found that there was no diversity of citizenship to support jurisdiction over the common law claims. Without mentioning the possibility of pendent jurisdiction, it nonetheless went on to the claims' merits and dismissed them as time-barred. We find diversity of citizenship. We then go on to address a defense contention that the district court left unresolved--whether Washington International was a party required to be joined under Rule 19, Fed. R. Civ. P. We conclude it was not. Finally, on the merits we affirm the district court.
IB is incorporated in Arizona and has its principal place of business in the District of Columbia; it is thus a citizen of both for purposes of diversity. See 28 U.S.C. § 1332(c) (1). Because Pyramid is a citizen of neither, there is apparent diversity. Yet, relying on several decisions of the Fifth Circuit, see, e.g., Freeman v. Northwest Acceptance Corp., 754 F.2d 553, 558 (5th Cir. 1985), the district court attributed a third citizenship to IB, the Cayman Islands citizenship of its subsidiary Washington International. The court argued that imputing a subsidiary's citizenship to its parent is proper where the latter is the "alter ego" of the former and, as in this case, "the parent corporation is being sued solely for the acts of its completely controlled subsidiary." J.A. 904.
We reject this analysis. In the reverse context, addressing efforts to attribute a parent's citizenship to its subsidiary, the courts have treated the two as separate entities. U.S.I. Properties Corp. v. M.D. Construction Co., 860 F.2d 1, 7 (1st Cir. 1988); Quaker State Dyeing & Finishing Co. v. ITT Terryphone Corp., 461 F.2d 1140, 1142 (3d Cir. 1972). The statute suggests no attribution rule in either case. Nor are we persuaded by the district court's suggestion that because Pyramid's substantive claim involved piercing the corporate veil, consistency required the court to do so for purposes of determining diversity. In fact the district court's citizenship analysis is in some ways the reverse of veil-piercing, for it looks through the shareholder (parent corporation) and treats the corporation (subsidiary) as the controlling reality. Focusing on the subsidiary for jurisdictional purposes seems wholly anomalous where the substantive claim is about the parent and any remedy must come from the parent's pocket. That the parent's liability arises from acts of a subsidiary does not seem to weaken the traditional concern, however obsolete, that home-state prejudice might unfairly jeopardize the "foreign" party.
Before the district court IB did mention two possible adverse effects of non-joinder. First, it argued that because Pyramid's allegations have jeopardized Washington International's reputation, the case "should be tried in the Cayman Islands where [Washington International] can clear its name." J.A. 329. The notion that parties must be joined merely because of the risk to their reputation is staggering. Without exploring its full implications, we simply note that it would scuttle the established principles that one joint tortfeasor is generally not an indispensable party in a lawsuit against another, see J.W. Moore, Moore's Federal Practice Sec. 19.12, at 19-216 & n. 20 (2d ed. 1985), and, more specifically, that agents are not indispensable parties in suits against the principal (at least where the principal was disclosed), id. at 19-219, citing Milligan v. Anderson, 522 F.2d 1202, 1204-05 (10th Cir. 1975).
We examine the issue of prejudice to IB from the perspective of the parties at the outset of this suit--i.e., without glancing sidelong at the outcome on the merits. See Tankersley v. Albright, 514 F.2d 956, 965-66 & n. 21 (7th Cir. 1975); but cf. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 110-11, 88 S. Ct. 733, 738-39, 19 L. Ed. 2d 936 (1968) (appellate courts may sometimes take outcome on merits into account); Bourdieu v. Pacific Western Oil Co., 299 U.S. 65, 71, 57 S. Ct. 51, 53, 81 L. Ed. 42 (1936) (where complaint fails to state cause of action, consideration of parties' indispensability is "a vain waste of time"). Courts appear to have regarded the ex post analysis as suitable only where the party raises the issue for the first time after judgment. See, e.g., Fetzer v. Cities Service Oil Co., 572 F.2d 1250, 1253-54 n. 6 (8th Cir. 1978); cf. Compania Trasatlantica Espanola, S.A. v. Melendez Torres, 358 F.2d 209, 214 (1st Cir. 1966). See generally C. Wright, A. Miller & M. Kane, Federal Practice and Procedure Sec. 1609 (2d ed. 1986). From an ex ante perspective, the possible injuries to IB from non-joinder fall into two categories, corresponding to the twin possibilities that IB would lose this lawsuit or win it.
First, IB might have feared that if it lost this suit it would ultimately have to pay two judgments on the same claim. But that result is inconsistent with the general common law principle (presumably applicable in the Cayman Islands) that a plaintiff can collect only once for a single injury. See Prosser & Keeton on Torts Sec. 48, at 331 (5th lawyer's ed. 1984) ("When payment of the judgment in full is made by the judgment debtor, there is no doubt that the plaintiff is barred from a further action against another who is liable for the same damages...."); 2 Restatement (2d) of Judgments Sec. 50, at 40-47 (1982); 4 Restatement (2d) of Torts Secs. 885-86, at 333-37 (1979); see also FSLIC v. Reeves, 816 F.2d 130, 135-37 (4th Cir. 1987).
Second, if IB won this suit, it would be exposed to the risk of paying for two defenses on the same claim, first here, then in a suit against Washington International. One answer lies in the possibility of defensive use of collateral estoppel, despite the want of "mutuality", though we do not know the status of that doctrine in the Cayman Islands. Compare Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 329, 91 S. Ct. 1434, 1443, 28 L. Ed. 2d 788 (1971); 1 Restatement (2d) of Judgments Sec. 29, at 291-303 (1982). Further, it may well be that by the time IB raised the Rule 19 issue the statute of limitations had run in every jurisdiction where Pyramid could have reached Washington International. In any event, such risks of double litigation will be posed in any case where a party is liable both directly and indirectly--either as owner or indemnitor of a potential second defendant. Without more, they seem too remote to sustain IB's claim of indispensability. Compare J. Moore, Sec. 19.07-2, at 19-140-42 & n. 13 (noting that Rule 19(a) requires a "substantial risk of incurring double, multiple, or otherwise inconsistent obligations" and that therefore "mere theoretical possibilities" of inconsistent obligations are not enough for indispensability under Rule 19(b)).
Contradictory pleadings do not usually create a judicial estoppel unless the party prevailed on the repudiated pleading. See Astor Chauffeured Limousine Co. v. Runnfeldt Investment Corp., 910 F.2d 1540, 1547-48 (7th Cir. 1990). But Attridge backed Pyramid's pleading up with his own affidavit, signed June 29, 1987, swearing:
Courts have long held that a party may not create a material issue of fact simply by contradicting its prior sworn testimony. See, e.g., Rohrbough v. Wyeth Laboratories, Inc., 916 F.2d 970, 975-76 (4th Cir. 1990); Farrell v. Automobile Club of Michigan, 870 F.2d 1129, 1131-32 (6th Cir. 1989); Adelman-Tremblay v. Jewel Companies, Inc., 859 F.2d 517, 520-21 (7th Cir. 1988); Martin v. Merrell Dow Pharmaceuticals, Inc., 851 F.2d 703, 706 (3d Cir. 1988) (citing cases); Van T. Junkins and Associates v. United States Industries, 736 F.2d 656, 657 (11th Cir. 1984); Radobenko v. Automated Equipment Corp., 520 F.2d 540, 544 (9th Cir. 1975); Perma Research and Dev. Co. v. Singer Co., 410 F.2d 572, 578 (2d Cir. 1969); Kizas v. Webster, 492 F. Supp. 1135, 1147 n. 42 (D.D.C. 1980), rev'd on other grounds, 707 F.2d 524 (D.C. Cir. 1983). " [T]he objectives of summary judgment would be seriously impaired if the district court were not free to disregard [the later testimony]." Martin, 851 F.2d at 706. Some courts have extended the doctrine to cover even a non-party witness brought forward to advance the party's case, see, e.g., Adelman-Tremblay, 859 F.2d at 521, but where as here the affiant is the sole shareholder and president of the plaintiff corporation, we need not reach that extension. The upshot is that the prior sworn statement will receive controlling weight unless the shifting party can offer persuasive reasons for believing the supposed correction. E.g., Farrell, 870 F.2d at 1131-32.
Such reasons are more likely to be available where the initial statement took the form of a deposition rather than (as here) an affidavit. A deponent may have been confused about what was being asked or have lacked immediate access to material documents. See, e.g., Franks v. Nimmo, 796 F.2d 1230, 1237 (10th Cir. 1986). As affidavits are prepared at the affiant's own initiative, these excuses are typically inapplicable. A party can also support repudiation of an earlier statement by offering newly discovered evidence. See, e.g, Adelman-Tremblay, 859 F.2d at 520.
Pyramid may have raised its awkward RICO claims because Hutton has (arguably) already compensated it for most or all of its losses (see note 2 above). Under RICO it appears that the proceeds of prior judgments are set off against a recovery only after the trebling of damages. Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1310 (7th Cir. 1987)
When Attridge returned from his honeymoon, he had several conversations with an unidentified Washington International employee who said that the bank did not have "any" documents from Hutton (apparently referring to ones that would have evidenced the churning). J.A. 722-23. Pyramid claims that Washington International thereby violated the wire fraud statute. See 18 U.S.C. §§ 1343, 1961(1) (B). As the alleged conversation occurred soon after Attridge's return, it would not extend the pattern of substantive crimes significantly beyond the original three months of churning