Opinion ID: 765593
Heading Depth: 2
Heading Rank: 3

Heading: The Shields Litigation

Text: 16 After American Continental declared bankruptcy, Shields, representing the class of persons who purchased securities of American Continental, instituted suit against Keating for damages resulting from purchasing overvalued securities. Shields at 6. The district court granted judgment as a matter of law in favor of Shields. Id. at 17-18. 17 In the present action the district court found that[t]he RTC's claims at issue were litigated in Shields where Keating was a primary defendant. District Court Order at 7. It further found that Keating had a full and fair opportunity to litigate each of the five claims the RTC is presently asserting against him. Id. The district court thereby found that this litigation provided an additional ground for summary judgment. 18 The RTC, as the party asserting issue preclusion, must show that the estopped issues are identical to issues litigated in a prior action. Kamilche Co. v. U.S., 53 F.3d 1059, 1062, amended by Kamilche Co. v. U.S., 75 F.3d 1391 (9th Cir. 1996); Montana v. U.S., 440 U.S. 147, 155 (1979)(whether the issues presented . . . are in substance the same). Determining whether two issues are identical for purposes of collateral estoppel often is a difficult question. See Charles Alan Wright, Law of Federal Courts S 100A, at 724 n.32 (5th ed. 1994). We have adopted four factors to aid in that process. Steen v. John Hancock Mut. Life Ins. Co., 106 F.3d 904, 912 (9th Cir. 1997) (citing Kamilche, 53 F.3d at 1062). Those factors are: 19 (1) is there a substantial overlap between the evi dence or argument to be advanced in the sec ond proceeding and that advanced in the first? 20 (2) does the new evidence or argument involve the application of the same rule of law as that involved in the prior proceeding? 21 (3) could pretrial preparation and discovery related to the matter presented in the first action rea sonably be expected to have embraced the mat ter sought to be presented in the second? 22 (4) how closely related are the claims involved in the two proceedings? 23 Kamilche, 53 F.3d at 1062 (quoting Restatement (Second) of Judgments S 27 cmt. c. (1982)). 24 Applying these factors, we must decide whether the issues actually litigated and necessarily determined in Shields are identical to those in this case. To make this determination, we examine the elements of the counts on which the district court granted summary judgment in the present case. Issue preclusion can be properly applied only if the determinations in Shields support each element of the RTC's claims. 25
26 Counts I and III of the RTC's Third Amended Complaint assert causes of actions for violations of 18 U.S.C.SS 1962 (c) and (d). 3 Since the RTC's section 1962(d) claim is premised on conspiracy to violate 1962(c), Count III relies on the application of collateral estoppel to uphold summary judgment on Count I. A violation of S 1962(c) . . . requires (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985) (footnote omitted). To prevail on its civil RICO claims, the RTC must prove each of those elements and that Lincoln was injured in [its] business or property by the conduct constituting the violation. Id. The causation element requires a showing that the conduct constituting the violation both directly and proximately caused the alleged injury. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992). Recovery under RICO is limited to those injuries flowing from predicate acts, see Sedima, 473 U.S. at 497 (Any recoverable damages occurring by reason of a violation of S 1962(c) will flow from the commission of the predicate acts.), and does not extend to all injuries caused by an enterprise which violates RICO. 27 In Shields the American Continental investors alleged that they purchased American Continental securities based on false representations. District Court Order at 8. At issue was whether Keating's wrongful conduct injured the American Continental investors in their business or property. The district court granted judgment as a matter of law, finding that Keating violated 18 U.S.C. S 1962 (c) and (d) and that Keating's conduct injured the American Continental investors. Shields at 17-18. 28 The issue involved in Shields is not the same as the issue in this case. Lincoln was not an investor in American Continental and Lincoln's alleged damages stem from conduct not adjudicated in Shields. While the pattern of conduct in Shields and the present action are related, the claims and damages are substantially dissimilar. Consequently, the Shields determinations cannot sustain the district court's summary judgment for the RTC. See Kamilche, 53 F.3d at 1062. 29
30 Counts VII and VIII of RTC's Third Amended Complaint assert claims for common law fraud and civil conspiracy, respectively. To prevail on its fraud claim, RTC must demonstrate that: (1) Keating made misrepresentations of material fact; (2) he knew the representations were false; (3) he intended to defraud Lincoln; (4) Lincoln actually and reasonably relied on the misrepresentations; and (5) Lincoln was damaged. See, e.g., Home Budget Loans, Inc. v. Jacoby & Meyers Law Offices, 255 Cal. Rptr. 483, 487 (Cal. Ct. App. 1989); Rice v. Tissaw, 112 P.2d 866, 868 (Ariz. 1941). The RTC grounds its civil conspiracy claim on the same factual predicate as its fraud claim. The civil conspiracy claim has one additional element -- that Keating agreed to or acted in concert with others to defraud Lincoln. 5 B.E. Witkin, Summary of California Law S 44 (9th ed. 1988); see also McElhanon v. Hing, 728 P.2d 256, 262 (Ariz. Ct. App. 1985), aff'd in part, vacated in part, 728 P.2d 273 (Ariz. 1986). 31 The district court granted RTC's motion for summary judgment on both claims on the basis of the Shields litigation. Specifically, the district court relied on the following factual findings: 32 The prices of American Continental securities were artificially inflated throughout the Class Period by false and misleading statements and financial reports. 33 American Continental violated federal banking regulations governing direct investments and affiliated transactions. 34 American Continental engaged in a scheme to upstream dollars from Lincoln to American Conti nental through an illegal tax sharing agreement. 35 The American Continental tax sharing agreement was designed to funnel money up to American Con tinental from Lincoln. 36 Shields at 11-12. 37 Application of the Kamilche factors indicates that those findings are not identical to the issues raised by the RTC's fraud and civil conspiracy claims. The RTC grounds its claims in the instant case on misrepresentations made to Lincoln and Lincoln's justifiable reliance on those misrepresentations. Those issues were not determined in Shields. In Shields the American Continental bondholders argued that they actually and reasonably relied on misrepresentations made in American Continental's annual and quarterly reports. 4 The RTC does not assert that Lincoln was misled into investing in American Continental, but rather the RTC alleges that misrepresentations were made to Lincoln unrelated to any investment in American Continental and that Lincoln reasonably relied on those misrepresentations. Because the evidence necessary to prove these two issues differ significantly, the Shield findings cannot support the application of issue preclusion. See Kamilche, 53 F.3d at 1062.
38 Count IX of RTC's Third Amended Complaint alleges that Keating breached fiduciary duties owed to Lincoln. The district court granted summary judgment against Keating on this count, grounded in Shields' conclusion that Keating breached his fiduciary duties to the bondholders and stockholders [of American Continental]. Shields at 18. The court also based its judgment on Shields' findings that Lincoln did not comply with good business practices; that Keating permitted construction loans to be made on the basis of unreliable financial information; and that Keating permitted Lincoln to invest in real estate without reasonable investigation. Id. at 14-15. 39 The Shields litigation focused on whether Keating breached his duties to American Continental. Shields at 18. That issue differs from the issue in this case. Here, the RTC alleges that Keating breached duties owed to Lincoln. Because the evidence necessary to prove a breach of Keating's duty to Lincoln differs from the evidence adduced in Shields, and the legal standard for determining whether that duty is breached differs from the standard employed in Shields, the issues involved in the two cases are different. See Kamilche, 53 F.3d at 1062. Collateral estoppel is thus inapplicable.