Opinion ID: 536607
Heading Depth: 2
Heading Rank: 2

Heading: Fraud, RICO, and Punitive Damages Claims

Text: 35 Wynfield claims that the district court erred in directing a verdict in the defendants' favor on its fraud, RICO and punitive damages claims. Wynfield's position is that the defendants intended to defraud Wynfield of proprietary information and other support services by promising to enter into a pre-opening furniture, fixture and equipment (FF & E) agreement, and the license and management agreements when in fact they had no intention of executing or performing these agreements. The defendants counter that Wynfield failed to introduce any evidence of intent to defraud, a necessary element of each of these claims. 36 Under Florida law, a common law fraud or misrepresentation claim requires: 37 (1) a false statement of fact, (2) known by the defendant to be false at the time it was made, and (3) made for the purpose of inducing the plaintiff to act in reliance thereon; (4) action by the plaintiff in reliance on the correctness of the representations; and (5) resulting damages to the plaintiff. 38 Stowell v. Ted S. Finkel Inv. Services, Inc., 641 F.2d 323, 325 (5th Cir. Unit B 1981). Florida law further recognizes that a promise is actionable as fraud only when the promisor had a positive intent not to perform his promise, or made the promise without a present intent to perform it. Bissett v. Ply-Gem Industries, Inc., 533 F.2d 142, 145 (5th Cir.1976). The parties' central dispute is whether Wynfield provided sufficient evidence to establish that the defendants misrepresented their intentions to perform under the franchise agreements from December 1984 through the fall of 1985. Wynfield's theory under its RICO claim also requires Wynfield to make a prima facie showing of fraud. Wynfield claims the defendants violated RICO because they engaged in a pattern of theft of hotel development and management services through violations of the mail and wire fraud statutes. Again, the defendants claim the district court properly directed a verdict because Wynfield failed to provide evidence of the element of fraudulent intent which the mail and wire fraud statutes require. Because the dispute over the grant of directed verdict on the fraud and RICO claims involves the same issue of whether Wynfield made a prima facie showing of fraudulent intent, we will analyze the appeal on the fraud and RICO claims together. 39 In reviewing a district court's grant of a motion for a directed verdict, this court must decide whether, considering all of the evidence in the light most favorable to the opponent, the facts and inferences point so strongly and overwhelmingly in favor of one party that reasonable persons could not reach a different conclusion. Aldridge v. Montgomery, 753 F.2d 970, 972 (11th Cir.1985). Under this standard, the district court properly directed a verdict for the LeRoux Group under the fraud and RICO counts. Although Wynfield exhorts that there is substantial evidence of the LeRoux Group's intent not to perform, our review of the record indicates to the contrary. 40 We have carefully reviewed the testimony of the principal witnesses in this case and conclude that the district court was correct in directing a verdict in favor of the defendants. We gather from Wynfield's brief that there are two areas from which Wynfield infers fraud. 7 The Territorial Rights Agreement executed by LeRoux Group and the Wynfield partnership anticipated that the parties would enter into licensing and management agreements prior to the opening of the hotels. The testimony reflects that the LeRoux Group did not execute the licensing and management agreements concurrent with the Territorial Rights Agreement because it wanted to negotiate some changes in them. Wynfield argues that the LeRoux Group withheld signing these agreements because it intended to obtain as much proprietary information and assistance from Wynfield as possible, but never intended to complete a permanent franchising agreement with Wynfield. 41 In deciding whether a reasonable person could have found, based on the evidence presented, that the LeRoux Group intended to defraud Wynfield, we must consider the appropriate burden of proof. The burden of proof is a substantive issue and is therefore controlled by state law in diversity cases. Palmer v. Hoffman, 318 U.S. 109, 63 S.Ct. 477, 87 L.Ed. 645 (1943); United States for Use & Benefit of General Elec. Supply Co. v. Wiring Inc., 646 F.2d 1037 (5th Cir. Unit B 1981). Formerly, Florida law required plaintiffs to prove fraud by clear and convincing evidence. However, in Wieczoreck v. H & H Builders, 475 So.2d 227 (Fla.1985), the Florida Supreme Court clarified some conflicting decisions and held that only a preponderance of the evidence is required to establish fraud. 42 Nevertheless, the facts presented at trial belie Wynfield's contentions of fraud. Bradley testified that he knew the contract required Wynfield to manage the LeRoux Group hotels and he knew that LeRoux Group had to execute the licensing and management contracts. (R. 13 at 977, 985). Further, all of the LeRoux Group witnesses, including Mr. LeRoux himself, testified that what LeRoux Group was seeking from the Wynfield partnership was expertise in hotel management. This is supported by testimony that LeRoux Group had previously lost the operation of a Hampton Inn in Orlando because of management failures. 43 It is further clear that the LeRoux Group terminated the contract with Wynfield because of the withdrawal of Russell and Lowndes from the Wynfield project. Mr. LeRoux testified that in the first meeting with Russell he was impressed with Russell's good management experience and success in the hotel field, that Russell's group appeared to have good development and construction abilities and that the two groups should have a good marriage. (R19-1722-24) While it is true that the record shows that Russell's expertise was in the investment aspects of hotel development rather than in the nitty-gritty of day-to-day management, there is no question that Russell had been very successful in hotel developments. Furthermore, it is uncontroverted that Mr. LeRoux thought that Russell was important to the LeRoux Group's success in the Wynfield Inn project, even though he may have been wrong. 44 We find, therefore, that the district court did not err in directing a verdict in favor of the defendants on Wynfield's first fraud theory. This theory is that because the LeRoux Group executed the Territorial Rights Agreement without executing the licensing and management contracts, the LeRoux Group never intended to execute the licensing and management agreements. Wynfield has offered no facts to support this theory and the trial testimony directly refutes this theory. From the evidence presented at trial, no reasonable jury could conclude that LeRoux Group never intended to complete a franchise relationship with the Wynfield partnership. Instead, the uncontroverted evidence shows that LeRoux Group executed the Territorial Rights Agreement intending to go through with the deal, and decided not to continue after Fairfield assigned its partnership interest to Wynfield Inns, Inc., thus removing Russell from the deal. 45 Wynfield next contends that LeRoux Group committed fraud by continuing to obtain proprietary information from Wynfield after having decided to terminate the contract. The contract was officially terminated by LeRoux Group on September 16, 1985 when Bradley called Theophilus, Wynfield's chief operating officer (R13-1027), although Mr. LeRoux individually made the decision not to go forward with Wynfield in mid-August when he learned from Bradley that Russell and Lowndes were no longer involved. (R19-1727-28). Mr. McFarlane, the chief executive officer of Wynfield, was invited by Bradley to attend the Red Sox baseball game on August 20 in Mr. LeRoux's private viewing room. Nevertheless, the testimony of Mr. LeRoux, Bradley, and McFarlane shows that Mr. LeRoux and Mr. McFarlane conversed not more than three minutes, that Mr. LeRoux expressed extreme displeasure at the withdrawal of Russell and Lowndes, and gave the impression that there would be no further dealings between the LeRoux Group and the Wynfield partnership. 46 In spite of Mr. LeRoux's adamant stance on this issue, Bradley, McFarlane, and Theophilus visited several tentative sites for Wynfield Inns the next day. Between August 20th and September 16th there were further discussions about the yet unsigned management contract. Mr. Theophilus testified that Wynfield provided valuable services and information to the LeRoux Group after August 20, including documentation regarding the whole subject of preopening, furniture, fixtures and equipment, ... specifications on various equipment, ... information on the linen ... and laundry equipment. (R6-155-56). 47 Nevertheless, the following facts remain uncontroverted in the record. LeRoux Group wanted to develop hotels in the northeastern United States. Mr. LeRoux was impressed by Mr. Russell's hotel development acumen and LeRoux Group picked Wynfield as a desirable franchisor because of Russell's expertise. LeRoux Group had some objections to the terms of the licensing and management agreements but continued to work toward mutual agreement with Wynfield on the terms to be included in those agreements. When Mr. Russell withdrew from the project, Mr. LeRoux became disenchanted. Bradley, the LeRoux official responsible for making the new hotels successful, realized that no person in LeRoux Group had the ability to manage hotels. Thus Bradley kept dealing with Wynfield for an additional three weeks after Mr. LeRoux said he wanted to terminate. When he realized that Mr. LeRoux would not change his mind, he called Mr. Theophilus and informed him that LeRoux Group would not continue with the franchise relationship. 48 Again, Wynfield's second fraud theory remains just that, a theory. We agree that the actions of Bradley and other LeRoux Group employees in continuing to deal with Wynfield after Mr. LeRoux had clearly stated his intention to withdraw caused Wynfield to continue imparting valuable information to LeRoux Group in anticipation of completing a deal that would never come about. 8 This scenario alone, however, is not sufficient to prove that LeRoux Group intended to defraud Wynfield. Wynfield has offered only theories and speculations as to why LeRoux Group entered into the Territorial Rights Agreement, but never completed the deal. The fact that the Territorial Rights Agreement was signed and that the deal was later broken off is insufficient to prove an intent to defraud by a preponderance of the evidence. Similarly, evidence that Bradley continued to go forward for one month after Mr. LeRoux had announced that the deal was off is insufficient to prove an intent to defraud. Wynfield has failed to present evidence in support of its theory that the reason these things happened is that LeRoux Group wanted to defraud Wynfield. We agree with the district court that reasonable jurors could not decide from the evidence presented at trial that the LeRoux Group had an intent to defraud Wynfield. 49 For the foregoing reasons, we agree that the district court was correct in directing a verdict on Wynfield's fraud and RICO claims. Furthermore, the lack of sufficient proof on these claims naturally precludes recovery of punitive damages. Finding that appellant waived his right to appeal the district court's ruling with respect to the contract claim, and that no errors were committed with respect to any of appellant's other claims, the judgment of the district court is 50 AFFIRMED.