Molinos Valle Del Cibao v. Oscar R. Lama ( 2011 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
FEB 24, 2011
No. 09-11153 JOHN LEY
________________________ CLERK
D. C. Docket No. 07-23066-CV-UU
MOLINOS VALLE DEL CIBAO, C. por A.,
a corporation of the Dominican Republic,
Plaintiff-Appellant,
versus
OSCAR R. LAMA,
CARLOS LAMA-SELIMAN,
OSCAR LAMA-SELIMAN, individuals
residing in the state of Florida,
Defendants-Appellees.
_______________________
No. 09-12587
________________________
D.C. Docket No. 07-23066-CV-UU
MOLINOS VALLE DEL CIBAO, C. por A.,
a corporation of the Dominican Republic,
Plaintiff-Appellee,
versus
OSCAR R. LAMA,
CARLOS LAMA-SELIMAN,
OSCAR LAMA-SELIMAN, individuals
residing in the state of Florida,
Defendants-Appellants.
________________________
Appeals from the United States District Court
for the Southern District of Florida
_________________________
(February 24, 2011)
Before TJOFLAT and COX, Circuit Judges, and KORMAN,* District Judge.
TJOFLAT, Circuit Judge:
This case stems from a foreign currency exchange agreement. The plaintiff,
a foreign corporation, bought United States dollars from the defendants, three
individuals—two of whom it turns out are citizens of the Dominican Republic—in
exchange for Dominican pesos. The plaintiff paid and the defendants did not; the
plaintiffs sued. What was otherwise a simple state law breach of contract action
*
Honorable Edward R. Korman, United States District Judge for the Eastern District of New
York, sitting by designation.
2
became much more complicated by inartful lawyering and the allure of treble
damages.
The defendants challenged subject matter jurisdiction at late junctures—on
the eve of trial for one theory, on appeal for another—regarding issues they could
have foreseen when they received the complaint over three years ago. The
plaintiff, after being fully compensated under its breach of contract theory,
contests the district court’s dismissal of its statutory worthless check claim, Fla.
Stat. § 68.065. Under both claims the plaintiff would receive the same
compensatory damages; the dismissed claim, however, would provide prevailing
plaintiffs with treble damages.
This opinion is organized as follows. Part I lays out the facts of the case
and its procedural history. Part II discusses the three issues related to subject
matter jurisdiction, and concludes that we have jurisdiction to hear the merits
arguments regarding one defendant. Part III addresses the plaintiff’s two
arguments regarding piercing the corporate veil—a necessary component for the
worthless check claim. Part IV addresses the remaining defendant’s two
arguments: that the district court erroneously admitted communications made
during settlement negotiations; and that there was insufficient evidence to show
3
that the currency broker who negotiated the contract was the defendant’s agent.
Part V concludes.
I.
A.
This case stems from a Foreign Currency Exchange Agreement (“the
Contract”) between the plaintiff, Molinos Valle Del Cibao, C. por A. (“Molinos”),
and the three defendants (collectively, the “Lamas”), Oscar R. Lama (“Oscar Sr.”)
and his two sons, Carlos Lama Seliman (“Carlos”) and Oscar Lama Seliman
(“Oscar Jr.”). Molinos is a Dominican corporation. The Lamas themselves reside
in Florida. Facts brought forward in supplemental briefing to this court show that
Oscar Sr. is a dual citizen of the United States and the Dominican Republic, but
that Carlos and Oscar Jr. are Dominican citizens working in the United States on
non-immigrant worker visas.
Molinos operates a flour mill, selling flour to the Dominican market, for
which it receives Dominican pesos. Its suppliers, however, are often American
companies; Molinos must pay their bills in United States dollars. To get the best
exchange rate for its pesos, Molinos often hires currency brokers to find and
contract with sellers of United States dollars.
4
In June 2004, Molinos needed to exchange approximately 28 million pesos
for United States dollars to pay its suppliers. It hired a currency broker named
Marcia Gabriela Bonnelly to find the best rate. To that end, she contacted Juan
Mejia, another currency broker. One of Mejia’s clients, the Lama family, was
looking to sell United States dollars. Mejia contacted one of the Lamas, Carlos,
who approved the Contract: 28 million Dominican Pesos for $636,596.00.
Molinos completed its side of the Contract; it drafted checks worth 28
million pesos and gave them to Bonnelly, who passed them on to Mejia.1 The
checks were not, however, made payable to any member of the Lamas family; they
were payable to other individuals and another corporation controlled by the
Lamas. Mejia testified at trial that this arrangement was normal for his
transactions on behalf of the Lamas. The family often needed instant liquidity and
therefore often requested that checks be made payable to their messengers, who
would then cash the checks on their trip back to the Lamas’ office. The checks
were honored and the Lamas received their pesos.
In return, Molinos received a series of checks totaling $636,596.00. These
checks were drawn from the accounts of two Dominican corporations, Chipstek,
1
The checks were not drafted from Molinos’s bank account; they were drafted on behalf of
Agronomica Don Pedro, another corporation “related to Molinos.” Early in the litigation, the Lamas
claimed that Molinos did not have standing to bring this claim because it did not draft the checks in
question. The district court rejected this argument and the Lamas do not raise it on appeal.
5
S.A. (“Chipstek”) and Expertek, S.A. (“Expertek”), and signed by either Carlos or
Oscar Jr. in their capacities as directors of Chipstek and Expertek. Both Chipstek
and Expertek are wholly-owned subsidiaries of Globaltek, S.A. (“Globaltek”).2
Globaltek is owned by ORLS International Holdings, which is in turn owned by
L&S Corporation; members of the Lama family, including Oscar Sr., Carlos, and
Oscar Jr., own L&S Corporation. The Lamas—Oscar Sr., Carlos, and Oscar
Jr.—are board members of Chipstek and Expertek, but do not own these entities
directly.
2
It is unclear if this statement is entirely true. The district court noted confusion in the record as
to this point. Order on Defs.’ Mots. for J. as a Matter of Law 2 n.1. In the district court, Molinos
asserted that Chipstek is 99.4 percent owned by Globaltek. Pl.’s Mem. Opp’n to Defs.’ Mot. for J. as a
Matter of Law, or, in the Alternative, Mot. New Trial or Remittur 13–14 n.9. It is unclear who owns the
remaining 0.6 percent. In its reply brief, Molinos asserts that Oscar Sr. “was not a shareholder of
Globaltek, Chipstek or Expertek.” Appellant’s Reply Br. 15. But Oscar Sr.’s deposition testimony read
at trial indicates that he owns a token amount of stock, though his testimony does not indicate how much.
For the purposes of this opinion, we will treat Globaltek as if it owned 100 percent of Chipstek’s
stock and ignore Oscar Sr.’s token interest. We feel comfortable doing this for two reasons. First, this
issue is only potentially relevant regarding Molinos’s attempt to pierce Chipstek’s corporate veil. But
Molinos’s brief to this court only argues that Oscar Sr. should be liable because he is a director of these
companies. Appellant’s Reply Br. 10 (“The Law Does Not Require Ownership, it is Sufficient that the
Lamas were Directors of Chipstek and Expertek”). Molinos has therefore waived any argument that
Oscar Sr.’s token stock ownership should factor into our evaluation of Molinos’s veil piercing argument.
Second, a brief investigation into Florida case law suggests that only controlling or majority
shareholders may be liable for the corporation’s debts under a veil piercing theory. See, e.g., Seminole
Boatyard, Inc. v. Christoph, 715 So. 2d 987, 989 (Fla. 4th Dist. Ct. App. 1998) (“If the state’s law allows
the debtor corporation to assert a claim against a controlling shareholder to pierce its own corporate veil,
then the claim is property of the estate.” (emphasis added) (citations omitted)); Estudios, Proyectos e
Inversiones de Centro America, S.A. v. Swiss Bank Corp., 507 So. 2d 1119, 1120 (Fla. 3d Dist. Ct. App.
1987) (“A corporation’s veil will be pierced where the corporation’s controlling shareholder formed or
used the corporation to defraud creditors by evading liability for preexisting obligations.” (emphasis
added)). Under this principle, even if Oscar Sr. is a nominal shareholder in either Chipstek or Expertek,
only Globaltek, which owns 99 percent of the companies, would be eligible for veil piercing.
6
Although Chipstek and Expertek wrote these checks, Molinos’s trial
testimony suggests that these corporations were not parties to the Contract.
Bonnelly was familiar with the Lamas but had never before done business with
these entities. Rather, she testified that the Lamas had a good reputation—“they
were responsible morally also and solvent”—in the business community and she
had consummated similar currency agreements with the Lamas on behalf of
roughly ten to twelve of her other clients. Molinos’s General Manager, Ruben
Reynoso, who approved the deal on Molinos’s behalf, likewise believed that the
Lamas were Molinos’s contractual counter-party; he had never heard of Chipstek
or Expertek. The Lamas’ reputation played a role in his approval of the Contract.
This trust was misplaced; the checks bounced. Molinos’s bank informed
Molinos that the accounts on which the checks were drawn either were overdrawn
or had been closed.
Wanting to resolve this issue, Molinos’s representatives met with the Lamas
on several occasions between August and October 2004. At one of these
meetings, Oscar Sr. acknowledged that his family, himself included, was
responsible for the sum of the bounced checks.3 Carlos also acknowledged that
3
This statement comes from Mejia’s trial testimony. Although it is unclear when Oscar Sr. said
this to Mejia, the reaction of the Lamas’ counsel suggests that it was during one of these negotiation
meetings; the Lamas objected to its entry under Fed. R. Evid. 408, which generally bars admission of
communications during settlement negotiations.
7
his family—he, Oscar Sr., and Oscar Jr.—was responsible for the debt. At the
conclusion of the October 2004 meeting, Carlos signed a settlement agreement
acknowledging personal liability for part of the debt and signed a corresponding
promissory note.4 The parties met again in 2006 to discuss the debt, which the
Lamas had not yet paid. Oscar Sr. attended that meeting and did not deny his
personal liability under the Contract.
Molinos never received its money. Its suppliers, however, still required
payment. Several of its checks to these suppliers also bounced; they were issued
in reliance on the availability of funds under the Contract. To cover its costs,
Molinos had to borrow money, incurring interest.
B.
4
The agreement covered not only a portion of the debt under the Contract, but also released
claims pending in court in the Dominican Republic over separate transactions related to bad checks. It is
unclear to what extent the negotiations described above covered both grounds—the debt and the
Dominican Republic litigation. The district court’s order admitting these discussions in evidence
suggests that it made a finding that the Lamas’ admissions of liability were not made during settlement
negotiations surrounding the Dominican Republic litigation; the court permitted the jury to hear these
statements but barred admission of “settlement negotiations and documentation regarding the
[Dominican Republic] Proceeding.”
The settlement agreement also provided a forum selection clause that requires all litigation
regarding the Contract to occur in the Dominican Republic. The Lamas did not seek to enforce this
clause in the district court and do not raise the issue on appeal.
At trial, the Lamas’ counsel raised for the first time a defense of accord and satisfaction based on
this settlement agreement. The district court refused to hear evidence on the issue because the Lamas
never pled the defense in their answer. They do not appeal this ruling, either.
8
Molinos brought this suit against the Lamas in November 2007 in the
United States District Court for the Southern District of Florida.5 The amended
complaint contained six counts.6 Count I alleged that the Lamas breached the
Contract. Counts II and III alleged fraud and negligent misrepresentation, but
were dismissed at the pleading stage and are not challenged here. Count IV
alleged a worthless check claim under Fla. Stat. § 68.065 and sought liability
directly against the Lamas under the theory that because Chipstek and Expertek,
the entities that issued the worthless checks, were the alter egos of the Lamas, the
court should pierce the corporate veil. This count is notable because it carries
with it the possibility of treble damages. Fla. Stat. § 68.065(1).7 Count V alleged
a violation of the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”),
Fla. Stat. § 501.204(1). Count VI alleged unjust enrichment, an alternative theory
if the court did not find an express contract to sustain Count I.
Regarding jurisdiction, Molinos cited diversity jurisdiction under 28 U.S.C.
§ 1332(a). Molinos alleged that it was a Dominican citizen and that the Lamas
5
The case was heard before District Judge Ursula Ungaro. The case was initially assigned to
District Judge Patricia A. Seitz, but was transferred to Judge Ungaro when Judge Seitz recused on
December 3, 2007.
6
Molinos filed his initial complaint on November 20, 2007, but filed an amended complaint on
January 24, 2008.
7
At oral argument, Molinos’s counsel conceded that the reason it appealed the district court’s
rejection of Count IV was the prospect of treble damages.
9
were “residents of Florida.” The Lamas did not contest diversity jurisdiction; their
answer acknowledged that they were “domiciled” in Florida.
Over the next months, the Lamas several times moved the court to dismiss
the case. They moved to dismiss the amended complaint on February 7, 2008 for
failure to state a claim for relief under Federal Rule of Civil Procedure 12(b)(6).8
The court granted this motion in part and dismissed Counts II and III, but denied
the rest of the motion. On August 25, 2008, the Lamas moved for judgment on the
pleadings under Rule 12(c); the court denied this motion. The Lamas also moved
for summary judgment under Rule 56 on all claims on August 26, 2008; this
motion was also denied.
The Lamas filed a motion in limine on October 3, 2008. Pertinent to this
appeal, the motion sought to exclude the promissory note signed by Carlos and
any statements made during the purported settlement discussions during 2004 and
2006. The district court denied the motion. It held that, because the Lamas never
denied either the validity or the amount of Molinos’s claim during those
negotiations, the negotiations were not covered by Federal Rule of Evidence 408.
8
The Lamas also moved to dismiss the amended complaint for insufficient service of process
under Rule 12(b)(5) and for forum non conviens. The district court denied the Lamas’ motion on these
grounds as well.
This opinion references two sets of rules: the Federal Rules of Civil Procedure and the Federal
Rules of Evidence. We will refer to any Federal Rule of Civil Procedure simply as a “Rule” and any
Federal Rule of Evidence as an “Evidence Rule.”
10
At trial, the court instructed the jury that the evidence was not being offered to
show liability—i.e., that the Lamas’ conduct breached the contract—but rather to
show that the Lamas, as opposed to Chipstek or Expertek, were Molinos’s true
counter-parties.
On January 20, 2009, the day before the trial began, the Lamas moved to
dismiss the case on two grounds: (1) for lack of subject matter jurisdiction under
Rule 12(b)(1) because all parties were aliens; and (2) for failure to join an
indispensable party under Rule 12(b)(7). They argued that, because Chipstek and
Expertek issued the checks and were therefore the “primary actors,” their
Dominican citizenship should be imputed to the Lamas, thereby destroying
alienage jurisdiction under 28 U.S.C. § 1332(a)(2) because Molinos, an alien,
would be suing the Lamas, also aliens. In the alternative, they argued that
Chipstek and Expertek were indispensable parties under Rule 19 and that the court
must dismiss the case under Rule 12(b)(7) because they were not joined. The
court delayed ruling on this motion until after trial and denied it on February 3,
2009.
The jury trial began on January 21, 2009 and featured three days of
testimony. At the close of both the plaintiff’s and their own cases, the Lamas
moved for judgment as a matter of law under Rule 50, citing insufficient evidence
11
on all claims. The court granted the motion in part. It dismissed the Count IV
worthless check claim against all defendants because Molinos did not put forward
evidence to pierce the corporate veil of either Chipstek or Expertek under an alter
ego theory. It also refused to consider Molinos’s alternative argument for Count
IV—that Chipstek and Expertek were the Lamas’ agents—because the court found
that Molinos had never before raised that theory. The court also dismissed the
Count V FDUTPA claim against Oscar Sr. because there was no evidence that he
played any role in the issuance of the checks.
The court then submitted to the jury the Count I breach of contract claim
and Count VI unjust enrichment claim against all defendants, and the Count V
FDUPTA claim against Carlos and Oscar Jr. The jury found for Molinos and
awarded $1.4 million on Count I and $636,596.00 on Count V. The district court
subsequently entered a judgment for that amount, holding all defendants jointly
and severally liable for the damages.
Shortly after the verdict, the Lamas again moved for judgment as a matter of
law under Rule 50 and, alternatively, for a new trial under Rule 59. They first
argued that there was insufficient evidence to show that Mejia was Oscar Sr.’s
agent, either actual or apparent. The district court rejected this argument, finding
that there was sufficient evidence to show that Oscar Sr. ratified Mejia’s acts. The
12
district court rejected the Lamas’ other arguments and allowed the verdict to stand,
but modified the judgment to reflect Molinos’s actual damages, $774,106.88, and
net pre-judgment interest of $327,322.33.9
Both parties appealed. Molinos appealed the dismissal of its Count IV
worthless check claim. The Lamas contested the subject matter jurisdiction ruling,
challenged the court’s admission of the purported settlement negotiations, argued
that Mejia was not authorized to bind the Lamas under Count I, and argued that
Carlos and Oscar Jr. were not liable under the FDUPTA under Count V.
At oral argument, the panel raised concerns regarding subject matter
jurisdiction because it appeared that Carlos and Oscar Jr. might not be United
States citizens. The parties submitted supplemental briefs on this issue. The
Lamas presented copies of non-immigrant worker visas for both Carlos and Oscar
Jr., as well as documentation proving that Oscar Sr. is a dual citizen of the United
States and the Dominican Republic. In its supplemental reply brief, Molinos
conceded that Carlos and Oscar Jr. are not United States citizens and therefore not
proper parties in a diversity action brought by a foreign corporation (Molinos).10
9
Molinos agreed with the district court’s re-assessed damages and does not challenge them on
appeal.
10
Molinos initially claimed, in its supplemental briefing to this court, that Carlos and Oscar Jr.
were permanent residents of the United States and should be treated, for diversity purposes, as citizens of
Florida under 28 U.S.C. § 1332(a), which states: “For the purposes of this section, . . . an alien admitted
13
It asked the court to dismiss Carlos and Oscar Jr. from the case and impose the full
judgment solely against Oscar Sr.
II.
Whether this court has subject matter jurisdiction is an issue of law that we
review de novo. Miccosukee Tribe of Indians of Fla. v. United States, 619 F.3d
1286, 1288 (11th Cir. 2010). The parties now agree that Carlos and Oscar Jr. are
not proper parties because they are Dominican citizens; their presence destroys
full diversity under alienage jurisdiction. We must therefore vacate the judgment
as it pertains to them.
Oscar Sr.’s status in this case remains contested. The Lamas raise three
possible bars to this court’s subject matter jurisdiction over the case as it pertains
to Oscar Sr. First, they claim that Oscar Sr. is an improper party under 28 U.S.C.
§ 1332(a)(2) either because he is a dual citizen or because he is domiciled abroad.
Second, because Carlos and Oscar Jr. are Dominican citizens, the Lamas argue
that the district court never had jurisdiction to hear this case and that we must
therefore vacate the judgment against Oscar Sr. and dismiss the entire case. Third,
to the United States for permanent residence shall be deemed a citizen of the State in which such alien is
domiciled.” 28 U.S.C. § 1332(a). Carlos’s and Oscar Jr.’s non-immigrant worker visas demonstrate that
they are not permanent residents; permanent resident aliens would not need visas to work in the United
States. Molinos apparently accepted these documents as authentic and abandoned its argument to the
contrary.
14
the Lamas argue that we should impute the Dominican citizenship of Chipstek and
Expertek to the Lamas—destroying diversity—because Chipstek and Expertek
were the real actors in this case. We address each argument in turn.
A.
Alienage jurisdiction is a form of diversity jurisdiction under which federal
courts may hear cases between “citizens of a State and citizens or subjects of a
foreign state.” 28 U.S.C. § 1332(a)(2). Like the complete diversity rule in cases
between citizens of different states, see Strawbridge v. Curtiss, 7 U.S. (3 Cranch)
267, 267, 2 L. Ed. 435 (1806), alienage jurisdiction prohibits an alien from suing
another alien in federal court unless the suit includes United States citizens as
plaintiffs and defendants, Iraola & CIA, S.A. v. Kimberly-Clark Corp., 232 F.3d
854, 860 (11th Cir. 2000). It is the burden of the party seeking federal jurisdiction
to demonstrate that diversity exists by a preponderance of the evidence.
McCormick v. Aderholt, 293 F.3d 1254, 1257 (11th Cir. 2002) (citing Scoggins v.
Pollock, 727 F.2d 1025, 1026 (11th Cir. 1984)).
In this case, the plaintiff, Molinos, is a Dominican corporation. The parties
now agree that two of the three co-defendants, Oscar Jr. and Carlos, are citizens of
the Dominican Republic and therefore are not proper parties in this diversity
action.
15
Oscar Sr., the third defendant, is a dual citizen of the United States and the
Dominican Republic. Molinos contends that dual citizens are considered to be
United States citizens for diversity jurisdiction. Oscar Sr. argues that his
Dominican citizenship defeats diversity: an alien plaintiff would be suing an alien
defendant. In the alternative, he argues that he was not a citizen of Florida.
Regarding Oscar Sr.’s first argument, this court has not explicitly
determined whether aliens may sue individuals who are dual United States citizens
under alienage jurisdiction. The courts of appeals deciding this issue have
uniformly held that, for diversity purposes, courts should consider only the United
States citizenship of individuals who are dual citizens. See, e.g., Sanchez v.
Aerovias De Mex., S.A. De C.V., 590 F.3d 1027, 1028 n.1 (9th Cir. 2010); Frett-
Smith v. Vanterpool, 511 F.3d 396, 399–400 (3d Cir. 2008); Coury v. Prot, 85
F.3d 244, 250 (5th Cir. 1996); Action S.A. v. Marc Rich & Co., 951 F.2d 504, 507
(2d Cir. 1991); Sadat v. Mertes, 615 F.2d 1176, 1187 (7th Cir. 1980); see also Von
Dunser v. Aronoff, 915 F.2d 1071, 1073–76 (6th Cir. 1990) (agreeing with Sadat’s
reasoning, but finding no occasion to so hold because the facts regarding the
parties’ domicile were unclear and required remand); Las Vistas Villas, S.A. v.
Petersen, 778 F. Supp. 1202, 1204 (M.D. Fla. 1991), aff’d 13 F.3d 409 (11th Cir.
1994).
16
We are persuaded by the reasoning of these courts and therefore hold that an
individual who is a dual citizen of the United States and another nation is only a
citizen of the United States for the purposes of diversity jurisdiction under
§ 1332(a). Oscar Sr.’s Dominican citizenship therefore poses no bar to this court’s
jurisdiction.
Oscar Sr.’s second contention is that he is domiciled in the Dominican
Republic and not domiciled in—and, hence, not a citizen of—Florida.11 He raises
this possibility for the first time in his supplemental briefing: “[T]he record
evidence demonstrates that Mr. Lama [Oscar Sr.] was living temporarily at an
address in Florida, and that he had maintained various business interests in the
Dominican Republic.” If true, this assertion would defeat diversity jurisdiction;
U.S. citizens domiciled abroad are neither “citizens of a State” under § 1332(a) nor
“citizens or subjects of a foreign state” and therefore are not proper parties to a
diversity action in federal court. Newman-Green, Inc. v. Alfonzo-Larrain, 490
11
Oscar Sr. does not explicitly argue that he is domiciled in the Dominican Republic. His
supplemental briefing discusses this topic in only one sentence. It says: “[T]he record evidence
demonstrates that Mr. Lama [Oscar Sr.] was living temporarily at an address in Florida, and that he had
maintained various business interests in the Dominican Republic.” Because everyone, with few
exceptions, has a domicile, this excerpt suggests that his true domicile lies in the Dominican Republic.
We also note that, under our normal waiver rules, we would not address this argument because of
its cursory nature. Oscar Sr. has presented neither facts nor law to support the sentence quoted above.
However, this issue raises questions of this court’s jurisdiction, which we must consider if in doubt.
17
U.S. 826, 828–29, 109 S. Ct. 2218, 2221, 104 L. Ed. 2d 893 (1989). Thus, our
next question is whether Oscar Sr. is, in fact, domiciled in the State of Florida.
“For adults, domicile is established by physical presence in a place in
connection with a certain state of mind concerning one’s intent to remain there.”
Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48, 109 S. Ct. 1597,
1608, 104 L. Ed. 2d 29 (1989); see also Sunseri v. Macro Cellular Partners, 412
F.3d 1247, 1249 (11th Cir. 2005). Domicile is not synonymous with residence;
one may temporarily reside in one location, yet retain domicile in a previous
residence. Although physically present in the current residence, the person does
not intend to remain in that state indefinitely.
The issue of Oscar Sr.’s domicile was never raised in the district court and
our record on this topic is therefore lean. What facts exist, however, satisfy us that
Oscar Sr. is domiciled in Florida.
First, Oscar Sr. maintained throughout the litigation that he is “domiciled
within the City of Aventura, Florida.” See Am. Answer and Affirmative Defenses
to Am. Compl. ¶ 5; Joint Pretrial Stipulation 6. His admission in the amended
answer is noteworthy. Molinos alleged only that Oscar Sr. was a “resident” of
18
Florida12 ; Oscar Sr.’s admission asserted not that he was merely a “resident” but
that he was domiciled in Florida. Courts generally give little weight to a party’s
profession of domicile; they do so because these declarations are often self-
serving. 13E Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal
Practice and Procedure § 3612, at 549 (3d ed. 2009). Here, however, quite the
opposite is true. These admissions work against Oscar Sr.’s interest and thus carry
evidentiary weight. See Fed. R. Evid. 801(d)(2)(A) (permitting hearsay statements
by a party-opponent’s own mouth or through her representatives); cf. Fed. R. Evid.
804(b)(3) (permitting hearsay from unavailable declarants if the statement
“render[s] invalid a claim by the declarant against another [such that] a reasonable
person in the declarant’s position would not have made the statement unless
believing it to be true”).
Next, Oscar Sr.’s deposition testimony given pretrial suggests that he
permanently resides—and thus is domiciled—in Florida. He states that he is “a
permanent resident of the United States” and has resided in the United States for
12
Ordinarily, the complaint must allege the citizenship, not residence, of the natural defendants.
Taylor v. Appleton, 30 F.3d 1365, 1367 (11th Cir. 1994) (“Citizenship, not residence, is the key fact that
must be alleged in the complaint to establish diversity for a natural person.”). We need not dismiss the
amended complaint, however. 28 U.S.C. § 1653 provides: “Defective allegations of jurisdiction may be
amended, upon terms, in the trial or appellate courts.” Because we read this provision liberally, see
Toms v. Country Quality Meats, Inc., 610 F.2d 313, 316 (5th Cir. 1980), we will allow Oscar Sr.’s
admissions and record evidence to cure Molinos’s pleading defect.
19
“two to three years.”13 When asked why he moved to the United States, Oscar Sr.
replied, “Because I am retired. I am a citizen and like the United States.” As a
“permanent resident,” Oscar Sr. suggests that he intends to reside in the United
States permanently. He lived in Aventura, Florida when Molinos filed this suit;
we may presume that, until controverted by fact, he is domiciled at his current
residence. See Slaughter v. Toye Bros. Yellow Cab Co., 359 F.2d 954, 956 (5th
Cir. 1966) (describing a “presumption of domicile in the jurisdiction where the
party is a resident at the crucial time, which in this case is the time of the
commencement of the action”).14 Furthermore, Oscar Sr.’s retirement decreases
the likelihood that his move to Florida was a temporary business arrangement.
Against this evidence, Oscar Sr. merely states that his residence in Florida
was “temporary” and that he had continuing business interests in the Dominican
Republic. To prove this assertion, Oscar Sr. says only that “the record evidence
demonstrates” his claim.
13
This statement came from Oscar Sr.’s interpreter. The transcript reads:
Q. How long have you lived [at your residence in Aventura]?
THE INTERPRETER: He doesn’t remember exactly since he came to the United
States, two to three years.
14
The Eleventh Circuit adopted as binding precedent all holdings of the Fifth Circuit prior to
October 1, 1981. Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981) (en banc).
20
The record before us refutes Oscar Sr.’s two claims. Regarding his
“temporary” residence, his deposition testimony does state that he resides
“[t]emporarily at 2600 Island Boulevard, Aventura, Florida.” “Temporary” did
not, however, mean that he was planning at some point to leave Florida. Rather, it
was temporary because, as Oscar Sr. stated, “it is not my property. Somebody is
loaning it to me and I am using it as long as I am provided with it.” When asked
whether he had a “permanent residence,” he did not claim any city in the
Dominican Republic; he was “a permanent resident of the United States” and “an
American citizen.”
Oscar Sr.’s purported Dominican business interests are similarly suspect.
First, his deposition testimony states that he is “retired.” Second, his trial
testimony shows that, although he was on the board of directors of many
companies,15 these positions were “honorary” and required little effort on his part.
With the evidence before us, we are persuaded that Oscar Sr. is a citizen of
Florida and therefore a proper defendant under § 1332(a)(2).
B.
15
His trial testimony does not give the nationality of any of these companies. We will assume
for the sake of argument that they are all Dominican.
21
We therefore turn to a more difficult question: must we dismiss the entire
case and vacate the judgment for lack of subject matter jurisdiction because
neither Carlos nor Oscar Jr. were proper parties?
An appellate court has the power under Rule 21 to rescue an otherwise valid
judgment by dismissing non-diverse parties. Newman-Green, 490 U.S. at 832–37,
109 S. Ct. at 2222–25; Iraola, 232 F.3d at 860–61; see also Grupo Dataflux v.
Atlas Global Group, L.P., 541 U.S. 567, 572–73, 124 S. Ct. 1920, 1925, 158 L.
Ed. 2d 866 (2004) (“[C]ourts of appeals also have the authority to cure a
jurisdictional defect by dismissing a dispensable nondiverse party.”). The relevant
portion of Rule 21 provides: “Misjoinder of parties is not a ground for dismissing
an action. On motion or on its own, the court may at any time, on just terms, add
or drop a party.” Fed. R. Civ. P. 21.
In using this power, the United States Supreme Court has cautioned that we
should do so “sparingly” and only if no party will be prejudiced by the dismissal.
Newman-Green, 490 U.S. at 837–38, 109 S. Ct. at 2225. Against this caution,
however, lies another command from the Supreme Court: “Once a diversity case
has been tried in federal court, . . . considerations of finality, efficiency, and
economy become overwhelming.” Caterpillar, Inc. v. Lewis, 519 U.S. 61, 75, 117
S. Ct. 467, 476, 136 L. Ed. 2d 437 (1996) (emphasis added); see also
22
Newman-Green, 490 U.S. at 838, 109 S. Ct. at 2226 (“Nothing but a waste of time
and resources would be engendered by remanding to the District Court or by
forcing these parties to begin anew.”). Keeping in mind that this case has already
been to a jury trial, we commence our inquiry.
Two factors establish prejudice under the Newman-Green framework. We
first determine whether the non-diverse party is indispensable under Rule 19.
Newman-Green, 490 U.S. at 835, 109 S. Ct. at 2224. If the party is indispensable,
then we must dismiss the entire case. See Fritz v. Am. Home Shield Corp., 751
F.2d 1152, 1155 (11th Cir. 1985) (“[The Plaintiff] apparently never requested the
court to determine that [the non-diverse defendant] was not an indispensable party
to the action under Rule 19, a finding that must be made before a Rule 21
dismissal of a nondiverse party is appropriate.” (citing Ralli-Coney, Inc. v. Gates,
528 F.2d 572, 575 (5th Cir. 1976)). Next, we must inquire whether the presence
of the non-diverse party provided the other side with a tactical advantage in the
litigation. Newman-Green, 492 U.S. at 838, 109 S. Ct. at 2225.
Rule 19 provides the rules for mandatory joinder of parties. For our
purposes, Rule 19 is a two-step inquiry. First, we determine whether the
parties—here Carlos and Oscar Jr.—are “required” parties. Fed. R. Civ. P. 19(a);
see also Temple v. Synthes Corp., 498 U.S. 5, 7, 111 S. Ct. 315, 316, 112 L. Ed.
23
2d 263 (1990). If they are required parties, but cannot be joined—i.e., because
they are non-diverse—Rule 19(b) provides a list of factors to “determine whether,
in equity and good conscience, the action should proceed among the existing
parties or should be dismissed.” Fed. R. Civ. P. 19(b).16
Assuming that Carlos and Oscar Jr. are required parties, Oscar Sr. has not
shown that they are indispensable under Rule 19(b). The Rule provides:
If a person who is required to be joined if feasible cannot be joined,
the court must determine whether, in equity and good conscience, the
action should proceed among the existing parties or should be
dismissed. The factors for the court to consider include:
(1) the extent to which a judgment rendered in the
person’s absence might prejudice that person or the
existing parties;
(2) the extent to which any prejudice could be lessened
or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person’s absence
would be adequate; and
(4) whether the plaintiff would have an adequate remedy
if the action were dismissed for non-joinder.
Fed. R. Civ. P. 19(b). These factors are “not intended to exclude other
considerations”; “pragmatic considerations” play a key role in our determination.
Fed. R. Civ. P. 19 advisory committee’s notes.
16
It is in this sense that “indispensibility” is akin to prejudice.
24
Consideration (1) does not aid Oscar Sr. He claims prejudice because “he
will be held liable on a contract of which there is no evidence that he had any part
in the formation, based on the alleged acts of two individuals, also allegedly
parties to the contract, which were never properly before the court.” This
argument is non-responsive to the inquiry. The advisory committee notes suggest
that the prejudice involved relates to the judgment itself; “[w]ould any party be
exposed to a fresh action by the absentee [party], and if so, how serious is the
threat?” Fed. R. Civ. P. 19 advisory committee’s notes. Oscar Sr. will not be
required to breach any duties to Carlos or Oscar Jr. by paying money damages to
Molinos.
Considerations (2) and (3) also weigh against dismissal. These provisions
come into play when—unlike this case—litigants seek specific relief such as an
injunction. In that context, if a party ultimately responsible for the plaintiff’s woes
is not present, the court cannot direct that party to change its behavior. See, e.g.,
Wymbs v. Republican State Exec. Comm. of Fla., 719 F.2d 1072, 1080 (11th Cir.
1983). Money damages lack these concerns. Money is fungible; the recipient
cares not from whence it came. See Fed. R. Civ. P. 19 advisory committee’s notes
(stating that money damages in lieu of specific relief would alleviate adequacy
concerns).
25
Adequate remedies, consideration (4), is contested by the parties. We need
not address this issue, however, because yet another practical consideration
weighs against dismissal. The federal courts have invested significant resources in
this matter: fifteen months of proceedings in the district court and a full jury trial.
This concern for conserving judicial resources, along with the above analysis,
demonstrates that “equity and good conscience” do not require that we find Oscar
Jr. and Carlos to be indispensable parties.
We also cannot find a tactical advantage gained here. Tactical advantages
include access to otherwise unavailable discovery materials only because of the
presence of the improper party. See Newman-Green, 490 U.S. at 838, 109 S. Ct. at
2225–26. Oscar Sr. has not pointed to any discovery Molinos would not have
otherwise received or witnesses it could not have called; he concedes that Oscar
Jr. and Carlos were within the court’s subpoena power. Oscar Sr. contends that,
because Carlos and Oscar Jr. were forced to testify on their own behalf, Molinos
gained an advantage by questioning them on cross-examination rather than on
direct examination. This concern is irrelevant; he does not claim that Carlos and
Oscar Jr. would testify to different facts in this counterfactual.
Oscar Sr. also complains that he was prejudiced because most of the
evidence at trial dealt with the conduct of Oscar Jr. and Carlos. This concern is
26
similarly irrelevant. The jury found Oscar Sr. liable for breaching the contract
with Molinos. Were he tried separately, Molinos would present the same facts to
the jury; Oscar Sr. has not pointed to any evidence that would be inadmissible or
otherwise unavailable at this hypothetical trial. We cannot assume a different
outcome without different facts.
We further note that, even if Oscar Sr. did suffer a tactical disadvantage, he
had the power to remedy that issue. He, Oscar Jr., and Carlos were represented by
the same counsel, who could have discovered that Oscar Jr. and Carlos were
Dominican citizens. What is more, Oscar Sr. must have known his sons’
immigration statuses. Had Oscar Sr. raised these jurisdiction concerns earlier in
the district court—or even at all—we might be sympathetic; as he did not, we are
not. See Ingram v. CSX Transp., Inc., 146 F.3d 858, 862–63 (11th Cir. 1998)
(“[Prejudice concerns] might be persuasive where a litigant raises the
jurisdictional issue at an earlier stage in the proceedings. [The litigant], however,
waited until her oral argument presentation on appeal—long after the district
court’s adverse ruling on the merits of her case. We decline to reward such
delay.”).
27
Oscar Sr. will face no prejudice as the sole defendant in this case. We
therefore use our Rule 21 power to dismiss Carlos and Oscar Jr. from this case and
retain Oscar Sr.
C.
The Lamas—now just Oscar Sr.—challenge diversity on yet another
ground. He claims that Molinos improperly omitted Chipstek and Expertek—the
writers of the bad checks—as defendants because their Dominican citizenship
would destroy complete diversity. Accordingly, he argues that we should either
impute the Dominican citizenship to Oscar Sr. or that Chipstek and Expertek are
indispensable parties under Rule 19.17
Oscar Sr.’s imputation argument flows from a corporate-law analogy, citing
a case from the Fifth Circuit, Freeman v. Northwest Acceptance Corp., 754 F.2d
553 (5th Cir. 1985). There, the plaintiff sought to hold a parent corporation liable
for its subsidiary’s actions on the theory that the subsidiary was the parent’s alter
ego—the same theory Molinos cited to hold Oscar Sr. liable under the Count IV
17
The Lamas made both arguments before the district court. On appeal, however, it appears that
the Lamas chose to focus solely on the Rule 19 argument. Under normal circumstances, the imputation
argument would thus be waived. We will address this argument, however, out of an abundance of
caution because, if meritorious, it could deprive this court of subject matter jurisdiction and thus the
power to hear this appeal.
28
worthless check claim. See id. at 554–55. The court of appeals imputed the
subsidiary’s citizenship to the parent and in doing so destroyed complete diversity.
Two strands of corporate case law supported the court’s ruling. First,
consolidated corporations may, in certain circumstances, retain the citizenship of
both pre-consolidated companies. Id. at 556 (citing John Mohr & Sons v. Apex
Terminal Warehouses, Inc., 422 F.2d 638, 641 (7th Cir. 1970)). A second line of
cases dealt with personal jurisdiction; the subsidiary’s amenability to service of
process would be imputed to the parent where the parent was sued for the
subsidiary’s actions. Id. at 557–58 (citations omitted). Essentially, the court
looked to substance over form and imputed the subsidiary’s citizenship to the
parent as if it had incorporated in multiple states. Id. at 558.
The district court rejected this argument as applied to Molinos. First, the
court noted that “Molinos . . . has looked at substance over form” and sued the
actual party responsible for its harm—the Lamas. Second, the court refused to
extend Freeman’s parent-subsidiary imputation to suits against shareholders.
Regarding the Count I breach of contract claim, the district court’s first
basis is persuasive. Molinos alleged, and the jury believed, that the Lamas
personally entered into a contract with Molinos via the Lamas’ agent. Under these
29
terms, Chipstek and Expertek were not parties to the contract, and therefore not
proper parties in this lawsuit.
We find the district court’s second explanation persuasive as to the Count
IV worthless check claim that Molinos presses on appeal. Freeman’s logic is
inapposite when applied to individuals.18 Corporations are “citizens” for diversity
purposes wherever they are incorporated and have their principal place of
business. 28 U.S.C. § 1332(c)(1). As a result, corporations may be citizens of
multiple states. Furthermore, corporations can merge and re-form themselves
wherever and in as many states as they please. Individuals have no such parallel.
They are only citizens of the state in which they are domiciled, McCormick v.
Aderholt, 293 F.3d 1254, 1257–58 (11th Cir. 2002); see also 28 U.S.C.
§ 1332(a)(1), and they have only one domicile, 13E Charles A. Wright, et al.,
supra, § 3612, at 528. They cannot choose to split their identities and
“incorporate” in a second state.
Freeman’s analogy to personal jurisdiction is similarly unavailing. Every
individual has but one domicile and is a citizen of only one state. That same
individual, however, is amenable to process in any state in which the individual
18
We have no opinion whether Freeman’s holding is sound and should be followed by this
Circuit. Rather, we merely hold that, whatever its validity elsewhere, its logic does not apply to
individuals.
30
maintains “minimum contacts.” PVC Windoors, Inc. v. Babbitbay Beach Const.,
N.V., 598 F.3d 802, 807 (11th Cir. 2010). But having minimum contacts with one
state does not change an individual’s domicile. Cf. Sunseri, 412 F.3d at 1249
(defining domicile as one’s “true, fixed and permanent home and principal
establishment, and to which he has the intention of returning whenever he is
absent therefrom” (citations omitted)). It therefore follows that, if an individual
were conducting her business via a corporate shell, the corporation’s minimum
contacts would not, even if they could increase the number of states in which she
could be sued, alter her domicile.
We therefore reject Oscar Sr.’s imputation argument. Instead, he must
convince this court that Chipstek and Expertek are indispensable parties under
Rule 19 and that the district court erred in failing to dismiss the case under Rule
12(b)(7).
As stated above, Rule 19 provides for mandatory joinder of “required”
parties, whose absence will prejudice either the absent party or the litigants.
Where the required party cannot be joined—because doing so would defeat
subject matter jurisdiction—the court must determine whether the lawsuit can
proceed without the party “in equity and good conscience.” Fed. R. Civ. P. 19(b).
The court must consider the prejudice suffered by the litigants, whether it can
31
shape relief to avoid prejudice, whether a judgment would be adequate, and
whether the plaintiff would have an adequate remedy if the action were dismissed.
Id. Again, these factors are not exclusive, and the court may consider other
“pragmatic considerations.” Id. advisory committee’s notes.
The district court rejected the Lamas’ Rule 19 argument principally because
it was filed on the first day of trial. Although Rule 12(b)(7) motions may be raised
even at trial, the late timing violated the district court’s scheduling order because
dispositive motions were due months earlier.
While we do not disagree with the district court’s ruling, Oscar Sr.’s brief to
this court provides a simpler basis with which to reject his argument: he does not
articulate any reason why he or the absent parties would be prejudiced. As the
party invoking Rule 19, it is his burden to demonstrate which Rule 19(b) factors
required dismissal “in equity and good conscience.” See Focus on the Family v.
Pinellas Suncoast Transit Auth., 344 F.3d 1263, 1280 (11th Cir. 2003) (“However,
[the moving party] has identified no reason why [the absent party] cannot be
joined in this action [thus requiring dismissal under Rule 19(b)].”).
His only colorable argument lies in a citation to relevant authority stating
that the acting subsidiary is a necessary party when a plaintiff sues the parent
corporation for the subsidiaries’ actions. See, e.g., Freeman, 754 F.2d at 559.
32
Even here, his argument fails; the only binding precedent he cites, Dernick v.
Bralorne Resources, Ltd., 639 F.2d 196 (5th Cir. 1981), held that the subsidiary in
question was not indispensable. See id. at 199–200 (finding that the subsidiary
would not be harmed because the plaintiff’s money damages against the parent
would not harm the subsidiary’s title to the relevant property).
Chipstek and Expertek are not indispensable parties and we need not
dismiss this action under Rule 19. With the jurisdictional issues settled, we now
move to the merits of the parties’ appeals.
III.
Molinos appeals the district court’s January 26 order dismissing the Count
IV worthless check claim under Rule 50. The district court found that Molinos
had not presented sufficient evidence at trial to pierce the corporate veil of both
Chipstek and Expertek to hold the Lamas personally liable for the bad checks
issued under those corporate names. Rule 50 provides in relevant part:
If a party has been fully heard on an issue during a jury trial and the
court finds that a reasonable jury would not have a legally sufficient
evidentiary basis to find for the party on that issue, the court may:
(A) resolve the issue against the party; and
(B) grant a motion for judgment as a matter of law
against the party on a claim or defense that, under the
controlling law, can be maintained or defeated only with
a favorable finding on that issue.
33
Fed. R. Civ. P. 50(a)(1). We review this claim de novo and consider the evidence
in the light most favorable to the non-moving party. Abel v. Dubberly, 210 F.3d
1334, 1337 (11th Cir. 2000).
In deciding these claims, we are applying Florida’s substantive law. See
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L. Ed. 1188
(1938). Where the highest court—in this case, the Florida Supreme Court—has
spoken on the topic, we follow its rule. Where that court has not spoken, however,
we must predict how the highest court would decide this case. Guideone Elite Ins.
Co. v. Old Cutler Presbyterian Church, Inc., 420 F.3d 1317, 1326 n.5 (11th Cir.
2005). Decisions of the intermediate appellate courts—here, the Florida District
Courts of Appeal—provide data for this prediction. Bravo v. United States, 577
F.3d 1324, 1325 (11th Cir. 2009) (per curiam) (citing West v. Am. Tel. & Tel. Co.,
311 U.S. 223, 237, 61 S. Ct. 179, 183, 85 L. Ed. 139 (1940)). As a general matter,
we must follow the decisions of these intermediate courts. Allstate Life Ins. Co. v.
Miller, 424 F.3d 1113, 1116 (11th Cir. 2005). But we may disregard these
decisions if persuasive evidence demonstrates that the highest court would
conclude otherwise. Id.
Here, piercing the corporate veil was necessary to hold Oscar Sr. and the
Lamas liable for the worthless checks. Florida’s worthless check statute, Fla. Stat.
34
§ 68.065, punishes the making or drawing of a bad check. But individual signers
of corporate checks are not liable for those checks; the corporation remains liable.
See Fla. Stat. § 673.4021(3). Chipstek and Expertek were the true “violators” of
the worthless check statute. Molinos therefore sought to hold Oscar Sr. liable for
Chipstek’s and Expertek’s actions by piercing the corporate veil under alter ego
and agency theories.
Molinos challenges the district court’s ruling on two fronts. First, Molinos
argues that it did present sufficient evidence to pierce the veil under an alter ego
theory. Second, it claims that it also presented evidence that Chipstek and
Expertek were the Lamas’ agents, and therefore we may impute the worthless
check to them personally. We find neither of these arguments availing.
A.
On appeal, Molinos argues that the district court erroneously concluded that
it did not present sufficient evidence to pierce the veils of Chipstek and Expertek
under an alter ego theory. In the district court, Molinos claimed that the Lamas,
Oscar Sr. included, controlled these corporations by virtue of their positions on the
board of directors.19 Molinos needed to pierce these veils because only Chipstek
19
As stated earlier, see supra note 2, the record is unclear whether Oscar Sr. is also a shareholder
in either of these companies. Molinos, however, only asserts that Oscar Sr. is liable by virtue of his
director position; it clearly does not believe that Oscar Sr. is a shareholder. We will honor Molinos’s
wishes and disregard the possibility that Oscar Sr. is a shareholder of Chipstek or Expertek.
35
and Expertek, the signer of the checks, could be held liable under Florida’s
worthless check statute. The alter ego theory could work around this hurdle.
In retort, the Lamas argue that Molinos’s veil piercing argument fails as a
matter of law because the Lamas were not shareholders of either corporation;
Globaltek owned the companies.20 Although the Florida Supreme Court has never
squarely answered this question, we predict that it would agree with the Lamas
and reject Molinos’s argument.
A corporation is a legal entity—a fictional person—capable of entering
contracts and doing business in its own right. The purpose of this fiction is to
limit the liability of the corporation’s owners, whether they be individuals or other
corporations. Finding this arrangement useful to commerce, the Florida courts
will not easily disregard this fiction. See Roberts’ Fish Farm v. Spencer, 153 So.
2d 718, 721 (Fla. 1963).
It is black letter law in Florida that to disregard this corporate fiction and
hold the corporation’s owners liable—to “pierce the corporate veil”—the plaintiff
must prove that:
(1) the shareholder dominated and controlled the corporation to such
an extent that the corporation’s independent existence, was in fact
20
The Lamas raise this argument for the first time on appeal. Were they the appellant for this
claim, we would find the argument duly waived. However, we may affirm the district court’s ruling on
any ground supported by the record. Powers v. United States, 996 F.2d 1121, 1123–24 (11th Cir. 1993).
36
non-existent and the shareholders were in fact alter egos of the
corporation;
(2) the corporate form must have been used fraudulently or for an
improper purpose; and
(3) the fraudulent or improper use of the corporate form caused injury
to the claimant.
Gasparini v. Pordomingo, 972 So. 2d 1053, 1055 (Fla. 3d Dist. Ct. App. 2008)
(emphasis added) (citations omitted); see also 8A Fla. Jur. 2d Business
Relationships § 13 (2008). “Shareholders” include individuals who own stock,
see, e.g., McCormack v. Ribbeck, 702 So. 2d 271, 271–72 (Fla. 1st Dist. Ct. App.
1997), and parent companies who own their subsidiaries, see, e.g., 17315 Collins
Ave., LLC v. Fortune Dev. Sales Corp., 34 So. 3d 166, 168 (Fla. 3d Dist. Ct. App.
2010).
The theme of ownership underlies Florida’s leading case on piercing the
corporate veil, Dania Jai-Alai Palace, Inc., v. Sykes, 450 So. 2d 1114 (Fla. 1984).
In Sykes, the plaintiff sued a parent company and its two subsidiaries. Although
only one of the subsidiaries committed the tort in question, the plaintiff alleged
that the subsidiaries operated as one entity and that these subsidiaries were the
“mere instrumentalities” of the parent, which should be liable for the subsidiary’s
actions. Id. at 1116. The trial court accepted this argument and the district court
37
of appeal affirmed, holding that the plaintiff need not prove any fraud or
wrongdoing on the part of the parent corporation, the subsidiaries’ owner. Id.
The Florida Supreme Court rejected this understanding, and in doing so,
based the rationale for piercing the veil on shareholder liability. The court
explained that shareholders incorporate to limit their liability, creating a separate
entity that is “apart from its stockholders.” Id. at 1118 (quoting Riesen v. Md.
Cas. Co., 14 So. 2d 197, 199 (Fla. 1943)). Correspondingly, courts will not ignore
this separate entity so long as the stockholders make “proper use” of this fiction;
they must not use limited liability to defraud creditors. Id. (citing Riesen, 14 So.
2d at 199; Barnes v. Liebig, 1 So. 2d 247, 253–54 (Fla. 1941)). It is when
shareholders “improperly disregard[] the corporate identities” that litigants may
peel back the veil of limited liability and hold the corporation’s owners
responsible for its debts. Id.
Sykes’s discussion of another seminal case, Mayer v. Eastwood-Smith &
Co., 164 So. 684 (Fla. 1935), also emphasizes ownership. In Mayer, the
individual defendant loaned bonds to the corporation in exchange for 25 percent
of the corporation’s profits and held, as security, the corporation’s stock. Id. at
684–85. As the Sykes court explained, the individual in Mayer was not liable
because he
38
owned none of the stock, held it only as security, never made use or
claimed ownership of the stock, and did not commit any improper act.
In other words, [he] had no relationship with the corporation under
any theory that would warrant holding him liable for the debts of the
corporation and had not committed any improper act.
Sykes, 450 So. 2d at 1118 (emphasis added).
Oscar Sr., the remaining defendant, did not own stock in Chipstek or
Expertek. Globaltek owned the shares.21 As stated above, normal veil piercing
cases seek to hold the parent corporation—here Globaltek—liable, not the parent’s
shareholders or the subsidiary’s officers. See USP Real Estate Inv. Trust v.
Discount Auto Parts, Inc., 570 So. 2d 386, 393 (Fla. 1st Dist. Ct. App. 1990).
Molinos contends, however, that this argument is a “contrived approach” to
the law and that Florida permits suits against individuals who are not shareholders.
Molinos cites two cases for this proposition. The first case, In re Multiponics,
Inc., 622 F.2d 709 (5th Cir. 1980), is inapposite because the individual was also
the sole shareholder of the company in question, id. at 725.
Molinos cites one case that pierces the veil against a non-shareholder
officer. Walton v. Tomax Corp., 632 So. 2d 178, 181 n.2 (Fla. 5th Dist. Ct. App.
1994); see also Bermil Corp. v. Sawyer, 353 So. 2d 579, 584 (Fla. 3d Dist. Ct.
21
Globaltek was in turn owned by ORLS International Holdings, which was in turn owned by
L&S Corp., which was, finally, owned by the Lamas. Again, we follow Molinos’s lead and disregard
any potential shares Oscar Sr. may own in either Chipstek or Expertek. See supra note 2.
39
Ohio App. 1978) (holding similarly on similar facts, but not cited by Molinos). This
case is distinguishable for two reasons. First, the corporation in question was not
the subsidiary of another corporation. Second, the sole shareholder in that case
was the defendant-officer’s wife. Walton, 632 So. 2d at 179; see also Sawyer, 353
So. 2d at 582. The Florida Supreme Court would likely find that second fact
dispositive; a wife’s ownership is a very close analogue to the husband’s
ownership because the economic proceeds likely benefit the entire family unit. A
separate corporate entity is nothing like a spouse.
Our research shows only one other case in which a Florida District Court of
Appeal explicitly found a non-shareholder liable under a veil-piercing theory.
Seminole Boatyard, Inc. v. Christoph, 715 So. 2d 987, 990 (Fla. 4th Dist. Ct. App.
1998). In Seminole, the individual held liable was also the president of the
corporation in question. Id. at 988. It is not clear, however, that the individual
was not also a stockholder. First, the court does not state who actually owned
stock. Second, the court, in two different parts of the opinion, expresses the
relevant law in terms of “shareholders.” Id. at 989 (“If the state’s law allows the
debtor corporation to assert a claim against a controlling shareholder to pierce its
own corporate veil, then the claim is property of the estate.” (emphasis added)); id.
at 990 (restating the black letter law for piercing the corporate veil in terms of
40
“shareholder” domination and control). And even if this individual did not own
stock, we are confident that the Florida courts’ emphasis on ownership would
cause the Florida Supreme Court to pay this precedent little heed.
We therefore conclude that Florida law, as we predict the Florida Supreme
Court would decide, does not permit a plaintiff to pierce the corporate veil against
a non-shareholder director. If Molinos believed that Chipstek and Expertek were
really sham entities, it should have sued Globaltek, not Oscar Sr.22
B.
Molinos’s second issue on appeal argues that Chipstek and Expertek were
the Lamas’ agents, and that their actions should be imputed to Oscar Sr. The
district court rejected this argument in its order granting the Lamas judgment as a
matter of law on the Count IV worthless check claim. It found that Molinos had
never before alleged that the two corporations were the Lamas’ agents; the court
refused to address the claim.
Rule 8 sets the standard for pleadings. It requires the plaintiff to include “a
short and plain statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2). Rule 8(d)(2) permits the plaintiff to “set out 2 or
22
Molinos could hypothetically hold Oscar Sr. liable by piercing the corporate veil through each
corporation between Globaltek and Oscar Sr. However, Molinos does not pursue this theory.
41
more statements of a claim . . . alternatively or hypothetically, either in a single
count or defense or in separate ones.” If the evidence at trial brings to light a new
theory of liability, the plaintiff may move the court to amend the pleadings if
doing so would not prejudice the defendants. Fed. R. Civ. P. 15(b).
We agree with the district court that Molinos did not raise an agency theory
in any of its court filings up until trial. The amended complaint only asserts the
alter ego theory to hold the Lamas liable for Chipstek’s and Expertek’s actions.
See Am. Compl. ¶ 21 (“At all material times to this Complaint, Molinos and the
Lamas were well aware that these entities were in effect mere instrumentalities,
alter egos, of the Lamas . . . .” (emphasis added)); id. ¶ 56 (“The Lamas, as herein
described, utilizing several of their wholly controlled or wholly owned entities as
their alter egos issued and caused to be issued to Molinos four checks totaling U.S.
$636,596.00.” (emphasis added)). Nowhere does it allege an agency relationship.
In opposing the Lamas’ motion to dismiss, Molinos asserted the alter ego
argument exclusively; it did not argue that the corporations were the Lamas’
agents. See Pl.’s Mem. Opp’n to Def.’s Mot. to Dismiss 18 (“Defendants, who
were personally liable to Plaintiff under the Foreign Currency Exchange
Agreement, used Chipstek and Expertek as their alter egos.”). In fact, the district
42
court explicitly credited the alter ego theory in denying the motion to dismiss.
Order Defs.’ Mot. to Dismiss 9.
Furthermore, the parties’ Joint Pretrial Stipulation continued to
assert—contrary to Molinos’s argument to this court—an alter ego theory
exclusively. In its statement of the case, Molinos states: “At no time during the
numerous meetings and conversations held by representatives of Molinos and the
Lamas personally, did the Lamas assert that . . . Chipstek and Expertek were not
mere instrumentalities utilized to issue the worthless checks to Molinos.” J.
Pretrial Stipulation 4. Under its “contested issues,” Molinos raised, “whether
Defendants disregarded the corporate formalities and used Chipstek, S.A. and
Expertek, S.A. as their mere instrumentalities.” Id. at 7.
Molinos used the word “agent” for the first time at the January 22 hearing,
defending against the Lamas’ motion for judgment as a matter of law at the close
of Molinos’s case in chief. In passing, Molinos’s counsel said, “We’re arguing
here from the outset that Chipstek and Expertek were mere agents of the Lamas.
So, either under the alter ego theory or an agency theory, the real parties here were
the Lamas.” It appears again in Molinos’s memorandum opposing the Lamas’
motion to dismiss for lack of subject matter jurisdiction. In both cases, the district
court refused to address this issue because it was not raised earlier.
43
With the issue absent from Molinos’s amended complaint, or any other
court submission, Molinos needed to move to amend the complaint under Rule
15(b) to add the agency theory. It did not do so—either orally at trial or via a
paper motion. We will therefore follow the district court’s lead and refuse to
consider the merits of Molinos’s agency theory. Having rejected Molinos’s claims
on appeal, we now move to the issues raised in Oscar Sr.’s appeal.
IV.
The Lamas filed a separate appeal, contesting an evidentiary ruling and
liability on both counts. As laid out in part II, Carlos and Oscar Jr. are no longer
parties to this action. They must therefore be removed from the district court’s
judgment and Count V, the FDUPTA count against only Carlos and Oscar Jr.,
must be dismissed.
The remaining issues impact Oscar Sr.’s liability regarding the Count I
breach of contract action. The Lamas first fault the district court for admitting
statements made by Oscar Sr. and Carlos during purported settlement negotiations
in 2004 and 2006, violating Evidence Rule 408. They also claim that, this error
notwithstanding, the evidence at trial was insufficient to prove that Mejia, the
Lamas’ currency broker, had authority to bind Oscar Sr. to the transaction. We
address each argument in turn.
44
A.
Oscar Sr. first argues that the district court improperly admitted evidence of
settlement discussions between him and Molinos, in violation of Evidence Rule
408. “We review a district court’s ruling on the admissibility of evidence for
abuse of discretion, and evidentiary rulings will be overturned only if the moving
party establishes that the ruling resulted in a “substantial prejudicial effect.”
Piamba Cortes v. Am. Airlines, Inc., 177 F.3d 1272, 1305–06 (11th Cir. 1999)
(citations omitted).
After Molinos learned that the Lamas’ checks had bounced, the parties met
to discuss the issue in August, September, and October of 2004, and again in
2006. At these discussions, the Lamas acknowledged the validity of the debt and
the amount of the debt.23
The evidence at trial showed that Oscar Sr. was present at one of the
meetings in 200424 and again in 2006. Molinos’s witnesses testified that, during
23
At the close of the 2004 negotiations, Carlos signed a promissory note, a “pague notorial,”
acknowledging that he was personally responsible for the debt. The promissory note was also the subject
of the Lamas’ evidentiary challenge, but, because it does not pertain to Oscar Sr., we will not discuss it
here.
24
Mejia testified that, after the checks bounced, he met with Oscar Sr., and that at this meeting,
Oscar Sr. acknowledged that he was personally liable for the debt. It is not clear whether this discussion
occurred in the context of the purported settlement negotiations or if this was merely a private discussion
between Mejia and Oscar Sr. We assume for the sake of argument that this discussion took place in the
context of settlement negotiations; otherwise, Evidence Rule 408 would not come into play.
45
these meetings, Oscar Sr. acknowledged that the debt was personal to him.25
Carlos, a frequent presence in these meetings, also acknowledged that the Lama
family was liable for the debt; according to one witness, Carlos’s references to his
family included Oscar Sr. Molinos sought to use this evidence to prove that it was
the Lamas personally, including Oscar Sr., and not Chipstek or Expertek, that were
parties to the contract.
The Lamas moved in limine to exclude any evidence of these talks. Styling
them “settlement negotiations,” they sought to exclude these conversations under
Evidence Rule 408. The court denied this motion, ruling that settlement
negotiations would be admissible as circumstantial evidence to prove that the
Lamas were parties to the contract, but not as an admission of liability.
Furthermore, the court ruled that these discussions were not covered under
Evidence Rule 408's proscriptions because neither the validity nor the amount of
Molinos’s claim was ever in dispute during these negotiations.26
Molinos’s trial witnesses testified to statements made during the purported
settlement negotiations. The court gave the jury this limiting instruction:
25
Oscar Sr. also testified at trial and denied that he ever acknowledged the debt as personal.
26
The motion in limine also sought to exclude evidence of side litigation between the parties in
the Dominican Republic. The court excluded any settlement negotiations regarding that litigation, but
distinguished between the those discussions and the 2004 and 2006 discussions described above.
46
You’re going to hear evidence of meetings which occurred
after the checks allegedly were returned for insufficient funds or
because the account was closed.
That evidence is not admitted for the purpose of establishing an
agreement on the part of the Lamas that they owed the debt, but it is
admissible for other purposes; for instance, for you to determine with
whom Molinos had an agreement, if anyone, with respect to the
currency exchange and with respect to, for instance, whether there is
any legal distinction that can be made between the Lamas themselves
and the corporations with which they were involved.
The court clarified this order: “They can consider the evidence, though for the
purpose of determining who were the parties to the currency exchange agreement
and whether or not there is a legal distinction which can be made between the
Lamas and Globaltek and these other corporations.”
Evidence Rule 408 covers the admissibility of evidence of “compromise and
offers to compromise”:
(a) Prohibited uses. Evidence of the following is not admissible on
behalf of any party, when offered to prove liability for, invalidity of,
or amount of a claim that was disputed as to validity or amount, or to
impeach through a prior inconsistent statement or contradiction:
(1) furnishing or offering or promising to furnish—or
accepting or offering or promising to accept—a valuable
consideration in compromising or attempting to
compromise the claim; and
(2) conduct or statements made in compromise
negotiations regarding the claim, except when offered in
a criminal case and the negotiations related to a claim by
a public office or agency in the exercise of regulatory,
investigative, or enforcement authority.
47
(b) Permitted uses. This rule does not require exclusion if the
evidence is offered for purposes not prohibited by subdivision (a).
Examples of permissible purposes include proving a witness’s bias or
prejudice; negating a contention of undue delay; and proving an effort
to obstruct a criminal investigation or prosecution.
Fed. R. Evid. 408 (emphasis added).
As the underlined text demonstrates, the claim must be disputed in some
way before Evidence Rule 408's proscriptions take effect. See Fed. R. Evid. 408
advisory committee’s notes (“The policy considerations which underlie the rule do
not come into play when the effort is to induce a creditor to settle an admittedly
due amount for a lesser sum. . . . Hence the rule requires that the claim be disputed
as to either validity or amount.”); 2 Weinstein’s Federal Evidence § 408.06 (2d ed.
2010) (“The [Advisory Committee’s] Note requires a careful distinction between a
frank disclosure during the course of negotiations—such as, ‘All right, I was
negligent. Let’s talk about damages’ (inadmissible)— and the less common
situation in which both the validity of the claim and the amount of damages are
admitted—‘Of course, I owe you the money, but unless you’re willing to settle for
less, you’ll have to sue me for it’ (admissible).”); see also Preis v. Lexington Ins.
Co., 279 F. App’x 940, 942–43 (11th Cir. 2008); Dallis v. Aetna Life Ins. Co., 768
F.2d 1303, 1306–07 (11th Cir. 1985).
48
The district court found that the Lamas, including Oscar Sr., did not dispute
the debt; they acknowledged its existence and that they were liable for its
payment. This determination is a subsidiary finding of fact under Evidence Rule
104(a), Fed. R. Evid. 104(a) (“Preliminary questions concerning the . . . existence
of a privilege or the admissibility of evidence shall be determined by the
court . . . .”), and we may overturn this finding only for clear error, City of
Tuscaloosa v. Harcros Chems., Inc., 158 F.3d 548, 556 (11th Cir. 1998). We find
no such error here and correspondingly find that the district court did not abuse its
discretion in admitting the purported settlement negotiations.
B.
Oscar Sr. also contends that Molinos did not present sufficient evidence to
hold him liable for Mejia’s actions. The district court found that Molinos
presented sufficient evidence to show that Oscar Sr. ratified Mejia’s actions when
he personally acknowledged the debt to Mejia. On appeal, Oscar Sr. argues that
Mejia had neither the apparent authority to engage in the transaction on his behalf,
nor was there evidence that he ratified Mejia’s actions and therefore assumed
49
liability.27 We agree with the district court that Oscar Sr. may be liable under a
ratification theory.28
“Ratification of an agreement occurs where a person expressly or impliedly
adopts an act or contract entered into in his or her behalf by another without
authority.” Deutsche Credit Corp. v. Peninger, 603 So. 2d 57, 58 (Fla. 5th Dist.
Ct. App. 1992) (citations omitted). The principal must have full knowledge of the
initially unauthorized agents’ conduct and approve of that conduct. Frankenmuth
Mut. Ins. Co. v. Magaha, 769 So. 2d 1012, 1021–22 (Fla. 2000).
Molinos presented sufficient evidence to prove an explicit ratification. It
presented evidence of a conversation between Mejia and Oscar Sr. during which
Oscar Sr. committed himself to the contract. Mejia testified,
I requested to go see Oscar Lama, Sr., the father, and he received me
and he told me not to have any doubt whatsoever; that they would
personally solve that problem; that I had worked with them in his
bank, and that I was aware of his financial and moral solvency; and
that under no circumstance would they look bad on anyone, even
though he had to use his reserves for his old age.
27
Molinos’s counsel stipulated that Oscar Sr. did not grant Mejia express authority to enter the
contract.
28
Oscar Sr. also contends that the ratification issue was a new theory presented for the first time
at trial and that we cannot consider this claim because Molinos did not move to amend its complaint at
trial under Fed. R. Civ. P. 15(b). The district court implicitly rejected this argument in its March 19,
2009 ruling on the motion for judgment as a matter of law. From the pleadings, we see this as fairly
presented and find no reason to disturb the district court’s judgment. As subpart III.B, supra,
demonstrated, the district court was perfectly capable of preventing Molinos from arguing new theories
raised for the first time at trial; the court’s failure to rule similarly on this issue speaks volumes.
50
When asked whether Oscar Sr. “indicate[d] that these checks would be made good
personally by the Lama family,” Mejia answered in the affirmative. He again
stated this point on cross-examination.29
Other testimony provided circumstantial evidence for this proposition.
Bonnelly, Molinos’s currency broker, testified that she had previously done
business with the Lamas, including the father; she had never done business with
Expertek or Chipstek. She testified: “Every time I do business with them, I would
do business with the Lamas; that is, the father, Oscar, and the son, Carlos Lama.”
She further testified that Carlos Lama indicated that the Lama family, including
Oscar Sr., would cover the bad checks. Reynoso also testified that Oscar Sr. did
not deny liability for the checks during the 2006 meeting. Although this fact alone
might not have established liability, it provides yet another inference in favor of
holding Oscar Sr. liable.
Against this argument, Oscar Sr. claims that he cannot be liable because he
did not accept any benefit from the contract. This argument suffers from two
flaws, one conceptual and one factual. Conceptually, the Florida case law refers to
acceptance of benefits to prove ratification where there is no proof of explicit
29
The transcript reads:
Q. Sir, I want to focus on Oscar R. Lama for a moment, the father. Now if I understood
your testimony yesterday, is it your testimony that he was part of this transaction?
A. That’s what he told me.
51
ratification. The case Oscar Sr. cites states, “Ratification, as applied to the law of
agency, is the adoption or affirmance by a principal of the acts of his agent, either
expressly, as by a written act, or impliedly, as by acceptance of the benefits of the
contract.” Spurrier v. United Bank, 359 So. 2d 908, 910 (Fla. 1st Dist. Ct. App.
1978) (emphasis added) (citation and internal quotation marks omitted). This
passage suggests that when, as here, the principal explicitly ratifies the agent’s
work, the plaintiff need not prove that the principal retained an improper benefit.
Factually, his argument also fails. Oscar Sr. claims that, because Molinos
never introduced evidence that its funds went directly to Oscar Sr.’s bank account,
the jury could not reasonably find that Oscar Sr. benefitted from the transaction.
Here, Molinos fulfilled its side of the contract by writing checks payable to several
third parties, at the direction of the Lamas’ broker, Mejia. Mejia, in turn,
explained that the Lamas often requested that the checks be payable to their
messengers, who would cash the checks right away; on this occasion, he believed
that several checks were payable to these messengers. When combined with
testimony that the Lamas were the real principals to the transaction, a jury could
reasonably conclude that the messengers completed their tasks and transported the
check proceeds to the Lamas, including Oscar Sr.
V.
52
We AFFIRM the district court’s judgment as to Oscar Sr., but VACATE
the judgment as to Carlos and Oscar Jr.
SO ORDERED.
53