Court Opinion

ID: 801540
Source: CourtListenerOpinion
Date Created: 2012-06-05 00:00:14+00
Date Added: 2024-06-11T18:00:00.676532
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 11-1985

          FÁBRICA DE MUEBLES J.J. ÁLVAREZ, INCORPORADO,

                      Plaintiff, Appellant,

                                v.

INVERSIONES MENDOZA, INC.; FRANK C. STIPES; MIGUEL A. VÁZQUEZ; XL
  SPECIALTY INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY;
  ACE INSURANCE CO.; WILLIAM M. VIDAL-CARVAJAL; XL PROFESSIONAL;
    LIBERTY INTERNATIONAL UNDERWRITERS, INC.; CHARTIS INSURANCE
                    CORPORATION OF PUERTO RICO,

                      Defendants, Appellees,

 FEDERAL DEPOSIT INSURANCE CORPORATION; BANCO POPULAR DE PUERTO
  RICO, as Successor in Interest of Westernbank de Puerto Rico;
                           ROSA VICENS,

                           Defendants.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF PUERTO RICO

          [Hon. Gustavo A. Gelpí, U.S. District Judge]

                              Before

                        Lynch, Chief Judge,
                Boudin and Lipez, Circuit Judges.

          Rafael González Vélez, with whom González Vélez Law
Office was on brief, for appellant.
          Roberto Busó-Aboy for appellee Miguel A. Vázquez.
          Manuel A. Pietrantoni, Casellas Alcover & Burgos, P.S.C.,
Benjamin C. Eggert, and Wiley Rein LLP on brief for appellee XL
Specialty Insurance Company.
June 4, 2012
            LYNCH, Chief Judge.         Fábrica de Muebles J.J. Álvarez,

Inc. ("Álvarez") brought suit against a bank whose successor is

Banco   Popular    de   Puerto   Rico    ("BPPR"),   under   the    Racketeer

Influenced   and   Corrupt   Organizations     Act   ("RICO"),     18   U.S.C.

§§ 1961-68, as well as under several Puerto Rico law causes of

action.   The suit alleged that Westernbank, BPPR's predecessor in

interest, swept funds from an escrow account held in plaintiff's

interest.    Plaintiff appeals both from the dismissal of the case

following a partial settlement and from the denial of its two

motions for reconsideration.       We affirm.

                                        I.

            On December 1, 2004, plaintiff Álvarez entered into a

written agreement to sell a furniture business, including the real

estate and goods, to Inversiones Mendoza, Inc. ("Mendoza").

Westernbank agreed to finance the transaction.          At the time of the

closing, Westernbank provided funds for a partial payment for the

property and obtained a first mortgage to guarantee both the loan

and other monies which Mendoza owed to the bank.                   The unpaid

portion of the sale became a deferred payment, and Mendoza signed

a mortgage note for $750,000.

            Westernbank demanded that the parties submit a written

consignment contract to the bank for its approval.            In response,

plaintiff and Mendoza executed a consignment agreement establishing

that all the consigned goods in the hands of Mendoza were, and

                                    -3-
would remain, the exclusive property of plaintiff, as would the

product of the sale of the goods.          The product of these sales,

together with all sales records and related documents, would be

delivered to plaintiff.          Plaintiff would then pay Mendoza the

corresponding amounts in accordance with the consignment agreement.

Plaintiff     then   deposited    consigned   goods,   with   a   cost   of

$1,503,900, with Mendoza.        These goods had an expected sales value

of more than $6,000,000.

             On August 29, 2004, the parties opened what plaintiff

alleges was an escrow account at Westernbank under the name of

Francisco Mendoza, Inc. d/b/a J.J. Álvarez, Account No. 204013356,

for the purpose of depositing the funds generated from the sale of

the consigned goods.     At the time the account was opened, Mendoza

was party to a separate security agreement with Westernbank that

allegedly gave Westernbank control over all accounts where Mendoza

deposited funds.       Plaintiff alleges that Westernbank provided

assurances that the escrow account would not be subject to the

separate security agreement with Mendoza, and that Westernbank

agreed that it would hold and manage said account for the benefit

of plaintiff, and make, or allow, regular payments, to plaintiff

from said account.

             Plaintiff alleges that Westernbank did not honor this

agreement.    Instead, it alleges, Westernbank daily swept and kept

money from the escrow account in partial satisfaction of the debts

                                     -4-
owed    to    it   by    Mendoza.    Similarly,      plaintiff    alleges   that

approximately $4.5 million generated by the sale of the consigned

goods was transferred directly to Westernbank without ever having

been deposited into the escrow account. It claims that Westernbank

and    its    employees     exercised     absolute   financial    control   over

Mendoza.      Westernbank enjoyed an irrevocable proxy, signed by the

main stockholders of Mendoza, which gave Westernbank full power

over Mendoza's stockholder and Board of Directors meetings.                   In

order to make any payments, Mendoza would have to justify the

expense to Westernbank, which would then make the funds available

to Mendoza for use.

               This domineering presence allegedly prevented Mendoza

from paying to plaintiff the product of the sale of the consigned

goods.       Plaintiff alleges that the bank permitted Mendoza to make

partial payments to plaintiff, but that the bank required Mendoza

to make the payments from a separate rotating account rather than

use the funds in the escrow account.            Mendoza made these payments,

amounting to $366,433, using money loaned to it by the bank,

further exacerbating its financial troubles.               Mendoza, unable to

pay its accumulating debts, eventually defaulted on its payments to

plaintiff for the deferred portion of the property purchase.

               As a result of its debts, Mendoza filed for Chapter 11

bankruptcy.        The appeal in this case is not from the bankruptcy

proceedings.            Plaintiff,   as    holder    of   the    mortgage   note

                                          -5-
representing the deferred payment, filed its proof of claim in

Bankruptcy Court.      On September 14, 2007, following Mendoza's

bankruptcy petitions, Westernbank filed an interpleader complaint

in the Bankruptcy Court, claiming that it had legitimate reasons to

fear overlapping liability with respect to the funds which had been

deposited in the escrow account.      The bank claimed that it did not

know who was rightfully entitled to the funds in the escrow

account, which at the time of the filing of Mendoza's bankruptcy

petition allegedly contained only $241,571.90.

          Mendoza entered into two initial settlement agreements.

On June 4, 2008, Mendoza agreed to transfer all of its real estate

holdings to Westernbank in exchange for release by the bank from

all debts owed.     On December 9, 2008, plaintiff and Mendoza signed

a settlement agreement forgiving Mendoza's unpaid debts. Under the

agreement, plaintiff agreed not to collect the outstanding claims

it had against Mendoza in exchange for an agreement to lift a stay

which would allow plaintiff to collect whatever amounts it could by

foreclosing on its mortgage.

                                  II.

          On June 19, 2009, plaintiff Álvarez filed a complaint in

the U.S. District Court for the District of Puerto Rico against

Westernbank   and    various   John     Doe   employees   and   insurance

                                  -6-
companies.1       The complaint identified five causes of action: (1)

"Civil Law Fraud, Breach of Fiduciary Duty, Lender's Liability";

(2) "Violation of R.I.C.O Act"; (3) "Civil Fraud Under Commonwealth

Law"; (4) "Recovery of Funds or Property"; and (5) "Foreclosure of

Mortgage."        As to the RICO claims, the plaintiff pled violations

under subsections (a), (c), and (d) of 18 U.S.C. § 1962.                  On

September 28, 2009, Westernbank moved to dismiss the complaint for

failure to state a claim. The district court partially granted the

motion, allowing only the § 1962(c) RICO claim and the remaining

state law claims to survive.        See Fábrica de Muebles J.J. Álvarez,

Inc. v. Westernbank de P.R., No. 09-1558, 2009 WL 4730776, at *5,

*9 (D.P.R. Dec. 4, 2009).

             On    April   30,   2010,    the   Commissioner   of   Financial

Institutions of Puerto Rico closed Westernbank's banking operations

and appointed the Federal Deposit Insurance Corporation ("FDIC") as

its receiver to liquidate Westernbank.           On the same date, the FDIC

sold most of Westernbank's assets to BPPR.           On May 12, 2010, BPPR

replaced Westernbank in the present case.

     1
         The complaint identifies "John Doe and Richard Roe" as
"fictitious names, to be later substituted for the real names, of
individuals who, as officers, directors or related persons of
Westernbank, maliciously or negligently participated or made
possible the incidents that give rise to this action."
     The complaint also identifies "Insurance companies 'A', 'B'
and 'C'" as "fictitious names, to be later substituted for the real
names, of insurance companies that issued policies to cover the
damages . . . caused by the bank, its officers, directors or
related."

                                         -7-
           Most significantly, on March 18, 2011, plaintiff agreed

at a settlement conference to voluntarily dismiss three of the five

causes of action against BPPR: (1) the civil law fraud and breach

of fiduciary duty claim, (2) the remaining RICO claim, and (3) the

claim of civil fraud under Puerto Rico law.           The district court

ordered the parties to file, pursuant to the settlement agreement,

a stipulation dismissing the three causes of action against BPPR by

March 25, 2011.     At that point, plaintiff had not identified or

served individuals who had been bank officers as defendants.

           At the same settlement conference, plaintiff informed the

court that it had recently identified insurance companies which had

issued   policies   that   would   cover   the   damages   in   the   case.

Plaintiff moved to amend the complaint by substituting those

companies for the fictitious insurers it had named in the original

complaint. In its order granting the motion to amend, the district

court explained that it was "reluctant to add new parties at this

stage in the case, [but that] plaintiff has shown cause for the

delay and the addition of these insurers at this stage may result

in the most expedient resolution of a complex matter."           Fábrica de

Muebles J.J. Álvarez, Inc. v. Westernbank de P.R., No. 09-1558

(D.P.R. Mar. 18, 2011).      The court allowed the plaintiff "until

March 25, 2011 to amend the complaint to name the insurers."            Id.

Neither the plaintiff's motion nor the district court order made

any reference to Westernbank employees.

                                    -8-
          On   March   25,    2011,   the     plaintiff    filed    an   amended

complaint naming not only the insurance companies that it had moved

to include in the complaint, but also several new Westernbank

employees.     On   April    4,   2011,     BPPR   objected   to   plaintiff's

inclusion of the Westernbank employees in contravention of the

express language of the district court's order.

          On March 28, 2011, after the stipulation deadline had

passed, BPPR moved to dismiss the causes of action that the

plaintiff had agreed to dismiss.2              BPPR represented that the

plaintiff had failed to cooperate or comply with any of its

requests to help prepare such a stipulation.              The district court

granted the motion.         Fábrica de Muebles J.J. Álvarez, Inc. v.

Westernbank de P.R., No. 09-1558 (D.P.R. Apr. 4, 2011).

          On   June    28,   2011,    the    district     court    ordered   the

plaintiff to show cause as to why the remaining claims, which it

characterized as state law claims, should not be dismissed for lack

of subject matter jurisdiction.           Fábrica de Muebles J.J. Álvarez,

Inc. v. Westernbank de P.R., No. 09-1558 (D.P.R. June 28, 2011).

     2
         BPPR moved to dismiss four causes of action: the three
agreed upon at the settlement conference, as well as a fourth,
"recovery of funds or property." The plaintiff filed an opposition
to the motion to dismiss, stating that it had not agreed to dismiss
the "recovery of funds or property" claim at the settlement
conference. Based on this opposition, the district court declined
to dismiss the "recovery of funds or property" claim. See Fábrica
de Muebles J.J. Álvarez, Inc. v. Westernbank de P.R., No. 09-1558
(D.P.R. July 5, 2011). Plaintiff did not claim that it also had
RICO claims against employees.

                                      -9-
It is clear the court considered that all federal claims had been

dismissed with the consent of plaintiff.              The order stated:

          The court is in the process of reviewing and
          considering all the pending motions.        It
          appears from the record that on April 4, 2011
          (Docket No. 124), the court dismissed the only
          federal claims before this court, to wit, the
          RICO claims.    Given that the federal RICO
          claim was dismissed without objection from the
          plaintiff, the court orders the plaintiff TO
          SHOW CAUSE on or before Friday, July 1, 2011,
          as to why the remaining claims should not be
          dismissed   for   lack   of   subject   matter
          jurisdiction, given that there is no federal
          question or diversity among the parties.

Id.

          Plaintiff did not respond to this show cause order within

the time directed by the district court.                On July 5, 2011, the

district court determined that only state claims for mortgage

foreclosure    and   recovery    of    funds    remained   at    issue   in     the

litigation and declined in its discretion to exercise supplemental

jurisdiction over such claims.           Fábrica de Muebles J.J. Álvarez,

Inc. v. Westernbank de P.R., No. 09-1558 (D.P.R. July 5, 2011).

          On    July   5,      2011,    plaintiff      filed    a    motion     for

reconsideration,     arguing    that    the    case   involved      questions    of

bankruptcy law that the district court was more competent to handle

than state courts.     The district court denied this motion on July

6, 2011 in a brief docket entry that states: "If the Bankruptcy

Court retained jurisdiction to entertain controversies regarding

the meaning of and compliance with the reorganization plan, any

                                       -10-
matter or dispute referring or relating to this plan should be

taken up with said court."          Fábrica de Muebles J.J. Álvarez, Inc.

v. Westernbank de P.R., No. 09-1558 (D.P.R. July 5, 2011).

              On July 21, 2011, the plaintiff filed a second motion for

reconsideration, this time arguing for the first time that the

district court should retain jurisdiction because it had RICO

claims against the Westernbank employees which had never been

dismissed.      On August 3, the district court denied this motion as

well,       stating   in   a     brief    docket   entry:      "The   court,   on

reconsideration, ordinarily will not consider any new grounds for

relief.        However,    the    proffered     reason   for   finding   federal

jurisdiction -- interpretation of a bankruptcy court ordered plan

within the state law dispute at issue -- is not per se a reason to

exercise jurisdiction."          Fábrica de Muebles J.J. Álvarez, Inc. v.

Westernbank de P.R., No. 09-1558 (D.P.R. July 21, 2011). On August

4, 2011, plaintiff appealed.

                                         III.

              Plaintiff Álvarez appeals both denials of its motions for

reconsideration, as well as the July 5, 2011 dismissal of the

case.3      We address each in turn.

        3
         Despite language in the plaintiff's appellate brief
suggesting otherwise, this appeal does not involve a challenge to
the district court's dismissal of the RICO claims against BPPR.
The § 1962(c) RICO claim against BPPR was clearly dismissed
pursuant to a settlement agreement between the plaintiff and BPPR.
Plaintiff did not object to that dismissal below, and any appeal of
that dismissal now is clearly waived. Furthermore, an appeal of

                                         -11-
A.            Denial of Plaintiff's Motions for Reconsideration

              We review a district court's dismissal of a motion for

reconsideration for abuse of discretion.                    Latin Am. Music Co. v.

Am. Soc'y of Composers, Authors & Publishers, 642 F.3d 87, 91 (1st

Cir. 2011).      "The granting of a motion for reconsideration is 'an

extraordinary remedy which should be used sparingly.'"                      Palmer v.

Champion Mortg., 465 F.3d 24, 30 (1st Cir. 2006) (quoting 11

Charles Alan Wright et al., Federal Practice and Procedure § 2810.1

(2d ed. 1995)).        The moving party "must 'either clearly establish

a    manifest    error      of    law   or   must     present      newly    discovered

evidence.'"      Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 7 n.2

(1st Cir. 2005) (quoting Pomerleau v. W. Springfield Pub. Sch., 362

F.3d 143, 146 n.2 (1st Cir. 2004)).                A motion for reconsideration

"does not provide a vehicle for a party to undo its own procedural

failures, and it certainly does not allow a party to introduce new

evidence or advance arguments that could and should have been

presented to the district court prior to the judgment."                      Aybar v.

Crispin-Reyes, 118 F.3d 10, 16 (1st Cir. 1997) (quoting Moro v.

Shell   Oil     Co.,   91   F.3d    872,     876   (7th     Cir.   1996))    (internal

quotation marks omitted).

              Plaintiff's        principal    claim    on    appeal    is    that   the

district court abused its discretion in denying the second motion

the dismissal of the § 1962(a) or § 1962(d) RICO claims against
BPPR would be untimely under Federal Rule of Appellate Procedure
4(a)(1)(A).

                                           -12-
for     reconsideration    because,    while   plaintiff   agreed   to     the

dismissal of the RICO claims against BPPR, plaintiff never agreed

to the dismissal of its RICO claims against the Westernbank

employees.

               The short answer is that it was reasonable for the

district court, after settlement, to have viewed the dismissal

order as encompassing all the RICO claims.           And plaintiff,4 when

given the opportunity to present a different view, utterly failed

to do so.

               It was reasonable for the district court to have believed

that the RICO claims against BPPR were the only RICO claims in the

case.       As an initial matter, the district court did not authorize

the plaintiff to amend the complaint to add the named Westernbank

employees. The plaintiff requested leave only to add new insurance

companies to the complaint, and the district court's order limited

the scope of plaintiff's amendment to the addition of insurance

companies      only.    Fábrica   de   Muebles   J.J.   Álvarez,    Inc.    v.

Westernbank de P.R., No. 09-1558 (D.P.R. Mar. 18, 2011).                 This

intent is reaffirmed in the district court's July 5, 2011, motion

dismissing the remaining claims without prejudice.             After BPPR

objected to the plaintiff's inclusion of new Westernbank employees

        4
        We do not need to decide whether plaintiff ever had any
viable RICO claims against certain Westernbank officers. By its
actions, plaintiff has waived any such claims and its eventual
protests were too little and too late.

                                      -13-
as parties, the district court clarified that the complaint had

been amended only "to include insurance companies, [and that] the

causes of action remained the same."           Fábrica de Muebles J.J.

Álvarez, Inc. v. Westernbank de P.R., No. 09-1558 (D.P.R. July 5,

2011).

          Moreover, as to the Westernbank employees, the complaint

pleads only the "control or influence" element of a RICO claim.

The remainder of the pled RICO claim discusses only the actions of

Westernbank and makes no mention of its employees. It is basic law

that RICO claims against employees must be separate and distinct

from those against the employer.        See, e.g., Bessette v. Avco Fin.

Servs., Inc., 230 F.3d 439, 449 (1st Cir. 2000).            Without having

pled each element of a RICO claim as to the Westernbank employees

separate and apart from Westernbank itself, it is not clear that

the complaint stated a claim under RICO against the employees or

was intended to do so.

          Further, no individuals had been named or served as

defendants at the time the claims were reported settled.           Although

the parties were ordered by the court to file a stipulation of

settlement,   plaintiff   failed   to     cooperate   and   did   nothing.

Plaintiff did not assert that it had RICO claims remaining.5

     5
        Nor did plaintiff seek leave, after it had reported the
case against the bank settled, to amend the complaint to assert
independent RICO claims against employees.

                                   -14-
          Nor did the plaintiff clarify post-dismissal, despite

several opportunities to do so, that it had intended to assert RICO

claims   against    the      Westernbank    employees,   which    were      not

encompassed by the dismissal.          First, the plaintiff failed to

respond to the district court's June 28, 2011 order to show cause

as to why the remaining claims should not be dismissed for lack of

jurisdiction.      "Because federal courts are courts of limited

jurisdiction, federal jurisdiction is never presumed." Viqueira v.

First Bank, 140 F.3d 12, 16 (1st Cir. 1998).           The party asserting

jurisdiction has the burden of demonstrating the existence of

federal jurisdiction. Id. (citing Aversa v. United States, 99 F.3d

1200, 1209 (1st Cir. 1996); Murphy v. United States, 45 F.3d 520,

522 (1st Cir. 1995)). By remaining silent on the show cause order,

plaintiff failed to meet this burden.

          Moreover, plaintiff failed to mention any such RICO

claims against the Westernbank employees in its first motion to

reconsider.     Instead, the plaintiff argued only that the court

should retain jurisdiction because the case involves settlement

agreements arising out of federal bankruptcy proceedings.              It was

not until the district court denied this first motion that the

plaintiff filed a new motion raising, for the first time, the issue

of RICO claims against Westernbank employees.

          This     attempt    to   resuscitate   any   RICO   claims   as   to

individuals came far too late. A motion for reconsideration is not

                                     -15-
a vehicle for the introduction of arguments that could and should

have been made to the district court earlier, nor may a party move

for reconsideration on the basis of its own procedural failures.

See Aybar, 118 F.3d at 16. Accordingly, the district court did not

abuse its discretion in denying the plaintiff's second motion for

reconsideration.

          Nor did the district court abuse its discretion in

denying the plaintiff's first motion for reconsideration.   There,

the plaintiff argued in essence that because Mendoza's June 4, 2008

and December 9, 2008 settlement agreements arose out of the

bankruptcy proceedings, they fall within the ambit of bankruptcy

law and a federal court is better positioned than a state court to

interpret their meaning and scope.

          The district court correctly ruled that the mere fact

that the settlement agreements arose in the context of a bankruptcy

proceeding is not a stand-alone basis for federal jurisdiction. To

the contrary, interpreting these agreements and their scope is a

matter of state contract law, an area that falls squarely within

the traditional competence of state courts.    See Citibank Global

Mkts., Inc. v. Rodríguez Santana, 573 F.3d 17, 26-27 (1st Cir.

2009).

B.        Dismissal for Lack of Subject Matter Jurisdiction

          Plaintiff argues that the court erred in dismissing the

case after the show cause order because its complaint should have

                               -16-
been read as asserting federal claims beyond the RICO claims.                  We

review de novo a district court's dismissal for lack of subject

matter jurisdiction.             Abdel-Aleem v. OPK Biotech LLC, 665 F.3d 38,

41 (1st Cir. 2012).

                 Plaintiff argues that the complaint on its face supported

several federal causes of action other than under RICO, including

under Sarbanes Oxley, 15 U.S.C. § 7219, the Transportation of

Stolen Property Act, 18 U.S.C. § 2314, statutes regulating the

relationship between the FDIC and the bank, including 12 U.S.C.

§ 1811,6 and various other federal securities laws.

                 The complaint's references to these statutes does not

come close to meeting the pleading requirements of Ashcroft v.

Iqbal, 556 U.S. 662 (2009).             See United States ex rel. Duxbury v.

Ortho Biotech Prods., L.P., 579 F.3d 13, 28 (1st Cir. 2009) (citing

Iqbal to affirm dismissal for lack of subject matter jurisdiction

where relator failed to adequately plead that he qualified as an

original source under the False Claims Act); Rodriguez v. SK & F

Co.,       833   F.2d   8,   8   (1st   Cir.   1987)   (per   curiam)   (affirming

dismissal for lack of subject matter jurisdiction where "the

plaintiff has failed to allege grounds upon which to support either

       6
        Plaintiff also argues that the FDIC's status as a party in
the case conferred upon the court federal question jurisdiction.
This argument is now moot; we have dismissed the appeal as to the
FDIC with prejudice pursuant to an agreement between the plaintiff
and the FDIC under Federal Rule of Appellate Procedure 42(b). See
Fábrica de Muebles J.J. Álvarez, Inc. v. Inversiones Mendoza, Inc.,
No. 11-1985 (1st Cir. Dec. 21, 2011).

                                          -17-
his conclusory allegation of diversity jurisdiction or federal

question jurisdiction").     At most, some of these statutes are

briefly mentioned in the complaint; they are simply listed on the

second page of the complaint rather than pled as causes of action,

and that is insufficient. See Marrero-Rodríguez v. Municipality of

San Juan, No. 11-1195, 2012 WL 1571234, at *3 (1st Cir. May 7,

2012) ("Plaintiff's purported Fourth Amendment claim fails to meet

the pleading standards of Iqbal [because it] was not even pled as

a claim, but only mentioned on the first page of the complaint.")

(to be published in F.3d).

                                IV.

          We affirm the district court's dismissal of the case

without prejudice, as well as the district court's denial of

plaintiff's two motions for reconsideration.

                               -18-