Opinion ID: 6295
Heading Depth: 2
Heading Rank: 2

Heading: The RICO Summary Judgments

Text: Conkling next challenges the district court's grant of summary judgment on his agreement to repurchase predicate act prior to trial and on his entire RICO case after the jury's verdict concluded the first phase of the bifurcated trial. With respect to the pre-trial summary judgment, the trial court did not elaborate upon the grounds for its decision. The trial court recited in its post-trial summary judgment that the jury's finding that the defendants were not guilty of any fraud decided the remainder of the RICO case as a matter of law. We note the standard of review and address each contention in turn.
Summary judgment is proper if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as 18 a matter of law. FED.R.CIV.P. 56(c). Once a properly supported motion for summary judgment is presented, the burden shifts to the non-moving party who bears the burden of proof at trial to show with significant probative evidence that there exists a triable issue of fact. In re Municipal Bond Reporting Antitrust Litig., 672 F.2d 436, 440 (5th Cir.1982). We review a summary judgment de novo, applying the same criteria employed by the district court in the first instance. Federal Deposit Ins. Corp. v. Dawson, 4 F.3d 1303, 1306 (5th Cir.1993); Fraire v. City of Arlington, 957 F.2d 1268, 1273 (5th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 462, 121 L.Ed.2d 371 (1992). Conkling implies that the district court improperly reversed itself, having originally denied summary judgment on certain issues, then later granting judgment on these same issues pursuant to its sua sponte reconsideration after trial. However, this court has held that a trial court may reconsider a previously denied motion for summary judgment even in the absence of new evidentiary material. Enlow v. Tishomingo County, Miss., 962 F.2d 501, 507 n. 16 (5th Cir.1992).
As one of the predicate acts in support of his RICO counts, Conkling asserts that Turner entered into an agreement with him over twenty years ago to purchase Conkling's stock at a fair price in the event of termination while harboring a secret intention never to perform that agreement. He argues that the district court erroneously granted a pre-trial summary judgment on this claim when fact issues abounded. 19 A contract to purchase and sell securities in the future can constitute a purchase or sale of the securities actionable under the federal securities laws. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 750-51, 95 S.Ct. 1917, 1932, 44 L.Ed.2d 539 (1975). However, Conkling did not assert an independent securities fraud claim. Rather, he has used the alleged violations as predicate acts under RICO. The defendants argue that Conkling has not claimed damages as a result of this fraud claim, but instead has requested specific performance of the agreement6, a remedy which is not available to private litigants under RICO. The district court apparently adopted this argument in deciding the issue since it originally denied summary judgment with respect to Conkling's breach of contract claim based upon the same allegations as was this fraud claim and against which the defendants raised virtually the same defenses save this one. This court has not yet decided whether RICO affords private litigants the option of equitable remedies,7 and our sister 6 In the trial court, the defendants pointed out that the damages Conkling seeks are actually the book value of the stock he currently owns and that Conkling himself has acknowledged that he must relinquish all of the stock if he is awarded damages on this claim. 7 In In re Fredeman Litig., we held that RICO did not authorize a private party to seek an injunction freezing a defendant's assets to secure a potential judgment since that remedy was not available outside of RICO, and we were unwilling to extend injunctive relief solely under RICO where the legislative intent did not appear to permit it. 843 F.2d 821, 830 (5th Cir.1988). We specifically reserved ruling on whether all forms of injunctive relief and other equitable relief are foreclosed to private plaintiffs under RICO. Id. 20 circuits appear to disagree on the issue.8 However, we need not resolve this dispute today since the district court's subsequent grant of judgment as a matter of law on Conkling's corollary breach of contract claim, see infra section II.D—finding that Conkling failed to adduce sufficient evidence that there was a contract—confirmed that summary disposition of this securities fraud claim was proper.9 The premise of this fraud claim is that Turner entered into an oral agreement to purchase Conkling's stock at the end of Conkling's employment. It was therefore critical that Conkling establish an oral contract to purchase or sell to sustain a fraud claim under federal securities laws. See Blue Chip 8 Contrast Religious Tech. Ctr. v. Wollersheim, 796 F.2d 1076, 1088-89 (9th Cir.1986) (expressly holding that injunctive relief was not available under RICO), cert. denied, 479 U.S. 1103, 107 S.Ct. 1336, 94 L.Ed.2d 187 (1987) and Dan River, Inc. v. Icahn, 701 F.2d 278, 290 (4th Cir.1983) (noting substantial doubt about whether RICO grants private parties ... a cause of action for equitable relief) and Miller v. Affiliated Fin. Corp., 600 F.Supp. 987, 994 (N.D.Ill.1984) (RICO does not permit equitable remedies such as declaratory judgment and recision.) with Bennett v. Berg, 685 F.2d 1053, 1064 (8th Cir.1982) (implying that equitable relief may be available under RICO), aff'd on reh'g, 710 F.2d 1361 (8th Cir.) (en banc), cert. denied, 464 U.S. 1008, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983) and Aetna Cas. & Sur. Co. v. Liebowitz, 570 F.Supp. 908, 910-11 (E.D.N.Y.1983) (reasoning that Congress did not intend to deprive the district court of its traditional equitable jurisdiction to grant injunctive relief for alleged violations of RICO statute), aff'd on other grounds, 730 F.2d 905 (2d Cir.1984). 9 This court may affirm a grant of summary judgment on any appropriate ground that was raised to the district court and upon which both parties had the opportunity to introduce evidence. Brewer v. Wilkinson, 3 F.3d 816, 820 (5th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1081, --- L.Ed.2d ---- (1994); Chevron U.S.A., Inc. v. Traillour Oil Co., 987 F.2d 1138, 1146 (5th Cir.1993); Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d 1351, 1355 n. 3 (5th Cir.1986). 21 Stamps, 421 U.S. at 751, 95 S.Ct. at 1932 (observing that [u]nlike respondent, which had no contractual right or duty to purchase Blue Chip's securities, the holders of puts, calls, options, and other contractual rights or duties to purchase or sell securities have been recognized as purchasers' or sellers' for purposes of Rule 10b-5.) (emphasis added). His failure to do so was fatal to this predicate act as a matter of law. 3. The case tried and resulting post-trial RICO summary judgment The district court specifically held that Conkling's claim under RICO should be dismissed since the jury found no fraud on the part of the defendants in this case. Implicit in this finding is a conclusion that all but one10 of the remaining predicate acts were dependent upon fraud in the 1963 agreement. The trial court had already dismissed before trial many of the predicate acts enumerated in Conkling's brief as either (i) derivative claims, which Conkling did not have standing to bring, or (ii) actions that could not be RICO predicate acts as a matter of law. The court then apparently determined that the predicate acts remaining for 10 As noted above, the parties agreed that there were fact issues as to whether the Harmony securities transaction could constitute a predicate act, thus precluding summary disposition of that claim, but standing alone, it could not constitute a RICO pattern. 18 U.S.C. § 1961(5); see also H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 237-38, 109 S.Ct. 2893, 2899-2900, 106 L.Ed.2d 195 (1989) (The statement that a pattern requires at least' two predicate acts implies that while two acts are necessary, they may not be sufficient.' ) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985)); McLaughlin v. Anderson, 962 F.2d 187, 192 (2d Cir.1992) (holding that the failure to establish at least two predicate acts is fatal to RICO claim). 22 jury resolution stemmed from the 1963 agreement11 and adjudicated all of them as a matter of law when the jury failed to find fraud in the execution of that agreement. Conkling argues that not all of his predicate acts can be neatly pigeonholed into one of the three enumerated categories. Specifically, he challenges the district court's resolution of the Harmony, Merit, TIL, IPS, Blast, and Trebco transactions. In his reply brief, Conkling belatedly asserts that the use of an improper depreciation measure unfairly deflated the book values of the companies in which he retained an interest. We discuss each of these claims below.
Although, as noted previously, the defendants concede a fact issue with respect to the Harmony dilution claim, that transaction standing alone could not support a RICO pattern—necessitating at least two acts of racketeering activity—under section 1961 of Title 18. 18 U.S.C. § 1961; see also McLaughlin, 962 F.2d at 194 (affirming dismissal of section 1962(c) & (d) claims because plaintiff failed to allege that any defendant committed more than a single act of racketeering).
The Merit Environmental and Gymco claims appear to be integrally related to the Merit transaction. However, neither of these transactions suffices to defeat summary judgment on the RICO case. Since Merit Environmental was a corporation wholly owned by Merit, Conkling could have no claim that he was defrauded out of 11 See supra note 4. 23 any proportionate ownership in Merit Environmental unless he could prove fraud with respect to Merit. Further, although Conkling argues in a conclusory manner that he was defrauded out of his relative ownership in Merit [ ], Merit Environmental, and Gymco pursuant to his ownership relationship agreement with Turner, he does not articulate in his brief any basis for asserting the predicate act of mail fraud with respect to Gymco. In fact, the only evidence proffered by Conkling to defeat summary judgment on the Gymco predicate act is evidence showing a fact issue with respect to Turner's ownership of the partnership. Conspicuously absent from Conkling's argument is any analysis of, or even reference to, summary judgment evidence tending to prove a mail fraud in connection with Gymco.12 In short, we have serious doubt that the Gymco transaction was ever more than an attempt to put before the jury evidence of Turner's other crimes under Federal Rule of Evidence 404(b). Regardless of whether the district court treated the Gymco facts as merely Rule 404(b) evidence or as an attempted predicate act of mail fraud, it properly disposed of the claim in summary judgment. The claims relating to Merit are more difficult. Conkling asserts in this court as below that he was fraudulently deprived by Turner of his rightful proportionate interest in Merit. This transaction was clearly not derivative, nor was it a direct result 12 Indeed, none of the 183 items transmitted through the U.S. mail to [Conkling] in furtherance of defendants' scheme to defraud, or the numerous mailings to the Louisiana Secretary of State referred to by Conkling in his brief even relates to Gymco. 24 of the 1963 agreement. However, we do not believe it was a viable predicate act by the time of trial. The defendants pointed out that Conkling waived any claim for damages from Merit, concluding that he could introduce the evidence under Federal Rule of Evidence 404(b) as evidence of other crimes, wrongs, or acts, which are only admissible for limited purposes, such as proof of motive, opportunity, [or] intent.... FED.R.EVID. 404(b). Conkling admits that he waived any damage claim with respect to Merit but contends that he did not waive the predicate act itself. He argues that it is not necessary to demonstrate injury flowing from each predicate act, but only from some in order to show a pattern of racketeering activity. See, e.g., Deppe v. Tripp, 863 F.2d 1356, 1366-67 (7th Cir.1988); Town of Kearny v. Hudson Meadows Urban Renewal Corp., 829 F.2d 1263, 1268 (3d Cir.1987); Marshall & Ilsley Trust Co. v. Pate, 819 F.2d 806, 809 (7th Cir.1987); Panna v. Firstrust Sav. Bank, 760 F.Supp. 432, 437 n. 6 (D.N.J.1991). Although the record is somewhat ambiguous on this point, it appears to us that Conkling waived the entire predicate act.13 During trial, Conkling's counsel admitted that he had previously agreed to abandon the damage claim on Merit because he understood the district court to have ruled 13 We asked the parties for additional briefing on whether Conkling had waived the Merit claims as predicate acts since the defendants had so intimated in their brief. The transcript shows that Conkling waived the Merit claim, assuming that he could admit the evidence under Rule 404(b), and reveals a series of conflicting positions taken by Conkling on this issue. Although, as acknowledged above, the sequence of events is less than clear—due largely to the fact that several critical, pre-trial conferences on this issue were unrecorded—our best reading of the record leads us to conclude that Conkling abandoned Merit as a predicate act. 25 that the evidence could be admitted under Rule 404(b) at a prior status conference. The district court apparently considered the transaction as being at best other crimes evidence as reflected in the following exchange: MR. BECKER [Conkling's counsel]: .... Do you remember, we talked about it. I agreed to give up the damage claim on Merit because you said it was admissible under 404(b) at the status conference. THE COURT: I didn't say that it was totally admissible.... [Merit] could not even be a damage claim because it wasn't prayed for, number one. Number two, what I said was—what I said was the fact that it is not a damage claim doesn't mean that it can[not] be used for another purpose including 404(b), but I never made a ruling that it was absolutely admissible under 404(b) at that time. It is entirely inconsistent for Conkling to claim that the Merit evidence is admissible under Rule 404(b) and yet to argue that it constitutes a predicate act. A predicate act, by its very nature, is evidence directly bearing on an issue in the case which would not need to be screened through Rule 404(b). Important in this regard is the fact that several documents of record reflect that the status conference referred to by Conkling's counsel in the above-cited dialogue took place prior to the district court's severance of the RICO claim. Accordingly, Conkling's voluntary waiver of the Merit transaction as a claim under the belief that the evidence would be admitted under Rule 404(b) could not have been simply a response to the trial court's ruling that only one predicate act would be tried.
Conkling also claims that the TIL predicate acts should not have been decided on summary judgment. Conkling admits that TIL 26 is, and always has been owned by Turner and his family. In fact, based upon Turner's representations that TIL would solely be an estate planning tool to enable Turner to hold all of his and his family's stock in Nichols and Harmony, ... Conkling agreed that he would not be entitled to acquire his relative ownership in TIL. Although it is undisputed that the ownership of TIL remains exclusively in Turner and his family, Conkling claims that the placement of TIL as chief operating company over Nichols and its affiliates somehow changed its nature and entitled him to ownership. A closer look at the allegations and evidence, however, shows that Conkling's damages are based upon TIL's profits from the management of the Nichols-related companies, which is a derivative claim. Since Conkling does not have standing to raise derivative claims on behalf of the companies in which he holds stock, see Adams-Lundy v. Association of Professional Flight Attendants, 844 F.2d 245, 250 (5th Cir.1988), the district court properly granted judgment on this claim in favor of the defendants.
IPS, Blast, and Trebco were each acquired by Nichols as a wholly-owned subsidiary, and the jury's confirmation of Conkling's 87 interest in Nichols demonstrated that he retained relative ownership in each of these companies. Therefore, these claims were properly resolved in the post-trial summary judgment as dormantly dependent upon a determination of fraud in the 1963 agreement.
Although Conkling's reply brief makes reference to the 27 improper depreciation claim numbered as predicate act 17, we do not consider arguments belatedly raised after appellees have filed their brief in the absence of manifest injustice. Najarro v. First Fed. Sav. & Loan Ass'n, 918 F.2d 513, 516 (5th Cir.1990); see also Smith v. Lucas, 9 F.3d 359, 367 n. 16 (5th Cir.1993). It appears to us that Conkling waited to raise this argument until his reply brief in order to evade the fifty-page limit set forth in Federal Rule of Appellate Procedure 28(g), and thus it is not manifestly unjust for this court to refuse to address it. See, e.g., Neeley v. Banker's Trust Co., 757 F.2d 621, 634 n. 18 (5th Cir.1985) (noting that the appellant's brief exceeded the 50-page limit and warn[ing] counsel that violations may result in the Court's striking of their briefs sua sponte ).
The trial court correctly perceived that the predicate acts remaining for jury resolution—with the exception of Harmony—were contingent as a matter of law upon a finding of fraud in the 1963 agreement. Accordingly, we hold that the trial court did not err in granting summary judgment to the defendants on the RICO case.