Conkling v. Turner ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 92-3370.
Richard L. CONKLING, Plaintiff-Appellant,
v.
Bert S. TURNER, et al., Defendants-Appellees.
April 20, 1994.
Appeals from the United States District Court for the Middle
District of Louisiana.
Before REYNALDO G. GARZA, KING and DeMOSS, Circuit Judges.
KING, Circuit Judge:
Plaintiff Richard L. Conkling ("Conkling") appeals a
take-nothing judgment rendered against him based upon his claims
for violations of the Racketeer Influenced and Corrupt
Organizations Act1 ("RICO"), breach of fiduciary duty, and breach
of contract under Louisiana law. Finding no error with the trial
court's resolution of the RICO and breach of contract claims, we
affirm the district court's judgment in those regards. However, we
find that the district court erred in granting summary judgment on
the breach of fiduciary duty claims, as discussed below, and
reverse and remand that portion of the case.
I. Background
This case has its origins in 1961, when defendant Bert S.
Turner ("Turner") recruited Conkling to work for a corporation that
Turner was forming with L.W. "Puna" Eaton, Jr. ("Eaton"). The
1
Title IX of the Organized Crime Control Act of 1970, Pub.L.
No. 91-452, 84 Stat. 922 (codified at 18 U.S.C. § 1961 et seq.).
1
corporation, Nichols Construction Corporation ("Nichols"), was
formed on December 28, 1961. Conkling went to work for Nichols in
January 1962. Conkling alleges that Turner represented at the time
that he would give Conkling stock in Nichols and all later-formed
entities if Conkling would make a long-term commitment to Nichols
and that such stock would be redeemed at a fair price when
Conkling's employment ended. Conkling claims he accepted this
offer.
A. The Nichols Agreements
In November 1962, Turner had a document prepared (the "1962
agreement") which provided for the issuance of 10 shares, or 5%, of
Nichols' stock to Conkling, and 10 shares each to two other
minority shareholders, Carmen St. Clair ("St. Clair") and J.B.
Millican ("Millican"). The 1962 agreement also provided that
Turner and Eaton would each receive 85 shares, or 42.5%, of the
Nichols stock. The price set forth in the document for the stock
was $1,000 per share. Conkling, St. Clair, and Millican were each
to give a $10,000 one-year note for his shares, and the document
provided that Nichols would hold his shares until the notes were
paid. Each of the parties executed the 1962 agreement.
Both Conkling and Turner testified that all parties agreed not
to follow this agreement after it was executed. In fact, Turner
and Eaton were apparently successful in obtaining financing after
the 1962 agreement was executed, and purportedly paid only $500,
rather than $85,000, for their shares. Conkling also claims that,
several days after Turner presented this document, Turner gave
2
Conkling his stock certificate for 10 shares, telling him that he
was receiving the stock for services Conkling had previously
performed for Nichols and that he would not have to pay the $10,000
note unless Nichols failed. Defendants stipulated that, according
to Nichols' records, Conkling was issued 10 shares of Nichols'
stock on November 15, 1962.
Six months later, in May 1963, Nichols redeemed Eaton's 85
shares at Turner's direction. According to Conkling, Turner
engaged in questionable practices related to his negotiations with
Eaton, including ordering the reporting of profits on certain
Nichols jobs to be delayed and instructing Conkling to withhold a
number of profitable jobs from Nichols' financial statement.
Turner also allegedly misrepresented to Eaton the value of Nichols'
equipment in order to avoid paying him a greater amount for
redemption of his stock. Conkling alleged that the redemption of
Eaton's stock increased his proportionate ownership of Nichols from
5% to 8.69565%.
In June 1963, Turner directed his lawyer to prepare another
document (the "1963 agreement") which recited that Turner owned
100% of Nichols. This agreement set forth the terms for Conkling
and the other minority shareholders to purchase an 8% interest in
Nichols. The document also contained a right of first refusal and
specific formula for redemption of any Nichols' stock; however,
that provision was subsequently deleted by agreement in August of
1966. Without telling Conkling anything beyond the contents of the
document, Turner stood over Conkling as Conkling read and signed
3
the document. Conkling argues that, as a result of Turner's
concealment and misrepresentations, Conkling relinquished his
8.69565% interest and purchased an 8% interest in Nichols.
B. The Nichols Affiliates
Over the years, Nichols prospered and new companies were
formed by Turner. The original Nichols shareholders had an oral
agreement to share proportionate ownership in any direct affiliates
or spin-off companies of Nichols. The relative ownership
relationship for the affiliate companies was to be based upon the
original ownership ratio of Nichols. The following companies,
formed as affiliates, spin-offs, or alleged affiliates of Nichols,
form the basis of Conkling's complaint.
1. National Maintenance, International Maintenance, TSMC, BTL, TL,
and Crest
In 1970, Nichols spun off a corporation to conduct maintenance
work previously done in Nichols' name and transferred almost
$1,000,000 worth of assets to the newly formed company, named
National Maintenance Corporation ("National Maintenance").
Conkling purchased an 8% interest in National Maintenance in
accordance with the relative ownership agreement between the
original Nichols founders. Similarly, International Maintenance
Corporation ("International Maintenance") was formed in 1971, and,
although no stock was issued until 1977, Conkling was able to
purchase an 8% interest in that company as well.
In 1971, TSMC Company ("TSMC") was formed as a partnership
designed to be supported exclusively by income from rental of
construction equipment to Nichols' affiliates on a cost-plus basis.
4
Conkling received an 8% interest in this partnership. T.L. Company
("TL") and BTL Company ("BTL") were also partnerships whose
revenues came from the rental of construction equipment to Nichols
and affiliates on a cost-plus basis. Conkling purchased 8%
interests in each in 1978 and 1980, respectively. Crest, Inc.
("Crest") was formed as a Texas corporation to pursue construction
opportunities in that state. Conkling acquired an 8% interest in
Crest in August of 1974.
2. TIL
In October of 1981, Turner formed Turner Investments, Ltd.
("TIL"), wholly owned by Turner and his family, to hold his
interests in Nichols and another related company. It subsequently
became the chief operating company over Nichols and its affiliates,
consolidating executive management, data processing, and accounting
personnel for these companies. TIL billed Nichols and its
affiliates for its services, and Conkling asserted that the
billings were excessive.
3. Blast, Trebco, and IPS
In August of 1975, Turner formed Blast Corporation ("Blast"),
which subsequently entered the residential construction market
under the name S & S Homes, Inc. ("S & S"). Turner supposedly told
Conkling that Blast was a mere shell, and Conkling did not purchase
an interest in the company. After sustaining losses, S & S was
changed back to Blast, and the company was purchased by Nichols in
August of 1977.
Trebco Corporation ("Trebco") was formed in September of 1983
5
to perform non-union industrial construction and maintenance work
in Texas. Conkling claims that Turner concealed Trebco so that he
would not be able to purchase an interest in the company. Turner
directed Nichols to lend up to $600,000 to Trebco for working
capital, but the company was relatively unsuccessful, reporting
heavy operating losses. Trebco was subsequently sold to Nichols on
October 9, 1984, although the stock certificate effecting the
transfer was backdated to November 1, 1983.
Nichols also spun off its entire pipe fabrication division and
formed International Piping Systems, Ltd. ("IPS") in July of 1982.
In the process, Nichols also transferred approximately $200,000
worth of assets to the newly-formed company. The stock in IPS was
originally issued to TIL, Turner's family-owned company, although
Conkling claims he was told it would be issued to Nichols. During
the time the IPS stock was owned by TIL, Nichols guaranteed
$7,000,000 in bonded indebtedness on behalf of IPS and loaned money
to the company. Conkling alleges that, in December of 1983, when
he discovered that the IPS stock had been issued to TIL, rather
than to Nichols, he brought the ownership issue to Turner's
attention, and Turner fired him. All of the stock in IPS was
subsequently acquired by Nichols in April of 1984 for the same
price as had been paid by TIL.
4. Harmony
On the same day Blast was formed, in August of 1979, Turner
also formed Harmony Corporation ("Harmony"). Turner has apparently
admitted that he concealed the creation of Harmony from Conkling.
6
The stock in Harmony was issued originally to unrelated parties,
but was subsequently acquired by Nichols and then Turner. Conkling
learned of Turner's ownership of Harmony and made repeated requests
to purchase an interest in the company. Although Turner takes the
position that Conkling was never entitled to purchase his relative
ownership interest in Harmony, he allowed Conkling to purchase
5,161 shares on March 14, 1980, for $1.00 per share. Conkling
understood that this quantity of shares would make him an 8.69565%
owner of the company. However, later that day, an additional
33,450 shares of Harmony were issued to Harmony's president, C.N.
"Bones" McLellan, Jr. ("McLellan"), thus diluting Conkling's
interest. McLellan testified that he was told he was to hold the
new shares as a nominee for Turner and that they were to be subject
to Turner's secret option to purchase. In fact, although McLellan
gave a note to Harmony for the purchase price of these shares, the
obligation was later cancelled when Turner purchased the shares by
executing a note to Harmony in the same amount.
5. Merit, Merit Environmental, and Gymco
Merit Industrial Constructors, Inc. ("Merit") and its
wholly-owned subsidiary, Merit Environmental Services, Inc. ("Merit
Environmental") were Louisiana corporations created in early 1982
to perform non-union industrial and environmental construction and
maintenance work. Merit was a competitor of Harmony's. Although
Turner has never been a named owner of Merit, Conkling claims that
there is sufficient evidence to show that he secretly owns the
company. The undisputed evidence reveals that Turner has supplied
7
Merit with significant cash infusions and has guaranteed loans for
the company with Louisiana National Bank ("LNB"), a bank on whose
board of directors Turner sits. Turner has also guaranteed lines
of credit and performance bonds on behalf of Merit. Although the
owners of record have executed a promissory note in favor of
Turner, it appears that no interest has been paid on this note
since 1983 and that the principal has only been reduced by
payments.
After Conkling heard rumors that Turner owned Merit, he
requested that he be allowed to purchase his relative ownership
interest in the company. Turner denied ownership in Merit, and
Conkling never acquired an interest in the company. Conkling also
asserts that Turner has used Merit to compete with Harmony,
sometimes using Harmony's confidential information to its
detriment.
Gymco was a Louisiana partnership formed by the owners of
Merit to purchase equipment exclusively for rental to Merit.
Conkling claims that Turner also secretly owns Gymco, as evidenced
by the fact that Turner guaranteed indebtedness of Gymco and
reported certain tax effects on his income tax returns with respect
to Gymco such as would signify ownership.
C. Discussions About Redemption of Conkling's Stock
As noted above, Conkling was fired from Nichols in December of
1983, and, not surprisingly, the parties dispute the reason for his
termination. After termination, the parties attempted negotiations
for the purchase of Conkling's stock in Nichols and its affiliates,
8
but were unable to agree to a price. One year later, Conkling sent
a letter to Turner offering to sell these interests for $7,000,000.
Although Conkling now claims that he had a binding agreement with
Turner to redeem the stock at a "fair price," the letter made no
reference to any such obligation. Turner never responded to the
letter, and this lawsuit followed.
D. The Instant Litigation
In November 1985, Conkling filed suit against Turner and
numerous corporations and partnerships controlled by Turner. He
also sued David R. Carpenter ("Carpenter"), who served as Chief
Financial Officer of Nichols and in various other capacities to the
Nichols spin-off companies. Conkling alleged civil RICO violations
under 18 U.S.C. §§ 1962(c) & (d). He also alleged pendent claims
under Louisiana law for breach of fiduciary duty and breach of
contract. His primary contention was that he was entitled to own
8.69565% of Nichols, but was defrauded out of the additional
.69565% in Nichols by the 1963 agreement. He argues that he was
consequently deprived of the additional .69565% interest in several
of the Nichols-affiliated companies based upon the application of
the Nichols ownership ratio. Conkling also claimed that Turner
schemed to prevent Conkling from acquiring any ownership interests
in several other, newly-formed companies by misrepresenting or
concealing Turner's ownership of these companies. Conkling alleged
mail fraud because Turner used numerous mailings to deceive
Conkling and securities fraud with respect to certain of the stock
transactions.
9
After a protracted discovery, the defendants filed motions to
dismiss and for summary judgment. A lengthy joint pre-trial order
defining the issues for trial was signed by the judge on October
17, 1991, and filed on October 21, 1991 (the "pre-trial order").
Prior to trial, by order entered January 21, 1992 (the "pre-trial
summary judgment"), the district court granted the defendants'
summary judgment motions in part, dismissing (i) Conkling's RICO
predicate act based upon Turner's alleged refusal to redeem his
stock in Nichols and affiliates, (ii) certain derivative claims,
(iii) Conkling's claims for wrongful discharge, denial of access to
corporate records, and damages due to the corporations' use of an
unfavorable depreciation method, (iv) all claims against Carpenter,
and (v) certain miscellaneous claims not discussed in this appeal.
In response to requests from both parties, the district court
clarified the pre-trial summary judgment by order of February 5,
1992 (the "clarification order"), to confirm that it had "dismissed
all claims which are shareholder derivative claims in nature,
including any claim involving Harmony to the extent that such claim
is derivative."
The weekend before trial, the district court announced that it
would sever the issues to be tried and would try only a single
alleged predicate act—fraud in the 1963 agreement—with respect to
Conkling's civil RICO claims in the first phase of trial. The
court also stated that the breach of contract claim would be tried
in this initial phase. After Conkling presented his case, both
parties moved for judgment as a matter of law; the district court
10
granted the defendants' motion with respect to Conkling's breach of
contract claims. The 1963 agreement issue was submitted to the
jury, which found that Turner did not commit fraud in the 1963
agreement. As a result of the jury's verdict on this issue, the
district court, on April 9, 1992, entered summary judgment in favor
of the defendants on the remainder of Conkling's complaint, both
under civil RICO and breach of fiduciary duty (the "post-trial
summary judgment"). The instant appeal ensued.
II. Analysis
A. The Severance Order
Conkling first contends that the trial court abused its
discretion in severing from his RICO case all predicate acts except
for his claim that Turner defrauded him into executing the 1963
agreement. Essentially, the trial court determined that Conkling
would not be able to show any pattern of racketeering activity
unless he could show that the agreement he and Turner entered into
in June 1963 was fraudulently induced. Thus, the trial judge
deemed it appropriate to try this issue alone before proceeding to
any other acts that could be predicate acts for the RICO claims.
In fact, after the jury determined that Turner had not defrauded
Conkling with respect to the 1963 agreement, the court below
dismissed the entire RICO case as a matter of law on the basis of
this finding.
Severance is proper when a trial court determines that
severance is "in furtherance of convenience or to avoid prejudice,
or when separate trials will be conducive to expedition or
11
economy." FED.R.CIV.P. 42(b); see also FDIC v. Selaiden Builders,
Inc., 973 F.2d 1249, 1253 (5th Cir.1992), cert. denied, --- U.S. --
--, 113 S.Ct. 1944, 123 L.Ed.2d 650 (1993). We review a severance
order for an abuse of discretion, recognizing that the decision to
bifurcate "is a matter within the sole discretion of the trial
court." First Tex. Sav. Ass'n v. Reliance Ins. Co., 950 F.2d 1171,
1174 n. 2 (5th Cir.1992). An "abuse of discretion exists only when
there is "definite and firm' conviction that the court below
committed clear error of judgment in the conclusion it reached upon
a weighing of the relevant factors." Hoffman v. Merrell Dow
Pharmaceuticals, Inc. (In re Bendectin Litig.), 857 F.2d 290, 307
(6th Cir.1988) (citation omitted), cert. denied, 488 U.S. 1006, 109
S.Ct. 788, 102 L.Ed.2d 779 (1989).
To determine whether the severance order was proper in this
case, we must first evaluate the basis of the RICO claims. Section
1962(b) of Title 18 makes it unlawful "for any person through a
pattern of racketeering activity ... to acquire or maintain,
directly or indirectly, any interest in or control of any
enterprise which is engaged in, or the activities of which affect,
interstate or foreign commerce." 18 U.S.C. § 1962(b). While the
RICO statute is by no means clear in many of its provisions, it
does provide explicitly that there must be a "pattern" of
racketeering activity and that "pattern" is defined to "require[ ]
at least two acts of racketeering activity." 18 U.S.C. § 1961(5)
(emphasis added); see also H.J., Inc. v. Northwestern Bell Tel.
Co., 492 U.S. 229, 237-38, 109 S.Ct. 2893, 2899-2900, 106 L.Ed.2d
12195 (1989); McLaughlin v. Anderson, 962 F.2d 187, 192 (2d
Cir.1992) (noting that the "bare minimum of a RICO charge is that
a defendant personally committed or aided and abetted the
commission of two predicate acts"). The trial court reasoned that
unless Conkling could show a scheme to defraud stemming from the
1963 agreement,2 he could not prove the minimum two predicate acts
to support a RICO claim.
We note at the outset that RICO cases appear to be specially
suited for trial limitation. In fact, numerous trial courts have
ordered separate trials on RICO claims to facilitate their
resolution and simplify jury presentation. See, e.g., Agency
Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143, 145, 107
S.Ct. 2759, 2761, 97 L.Ed.2d 121 (1987) (reciting that RICO case
had been severed from antitrust and tortious interference claims);
United States v. Quintanilla, 2 F.3d 1469, 1479-80 & n. 13 (7th
Cir.1993) (recognizing that trial court had ordered separate trial
on RICO count and other fraud counts pertaining to an identifiable
fraudulent scheme); First Nat'l Bank and Trust Co. v.
Hollingsworth, 931 F.2d 1295, 1301 (8th Cir.1991) (noting that RICO
case had been tried separately from fraudulent conveyance issues);
cf. Laitram Corp. v. Hewlett-Packard Co., 791 F.Supp. 113, 117-118
2
As noted above, both parties agree that their agreement to
share proportionate ownership in Nichols' affiliates was tied to
the ownership ratio of Nichols itself. Thus, if Conkling were
entitled only to 8% of Nichols, he would similarly be entitled
only to 8% of the affiliates, all of which he admits having
received. Conversely, if he could establish that he was
defrauded out of 8.69565% of Nichols, he would have a claim to an
additional .69565% ownership in each of the spin-off companies.
13
(E.D.La.1992) (trifurcating complex patent trial into phases to
diminish potential of jury confusion). Other courts have
bifurcated distinct classes of predicate acts supporting the
substantive RICO claim for separate disposition. E.g., United
States v. Jenkins, 902 F.2d 459, 461 (6th Cir.1990) (observing that
district court had severed mail fraud predicate acts from
substantive RICO claim and bribery and extortion predicate acts);
cf. United States v. Coonan, 839 F.2d 886, 889-90 (2d Cir.1988)
(suggesting a bifurcation procedure to be used at the
charge/deliberation stage in which jury is first asked to determine
which, if any, of the charged predicate acts were committed and,
only if two or more are found, to consider their relatedness for
purposes of a racketeering pattern).3
Conkling's RICO case is similarly complex. In all, Conkling
has alleged during the course of this litigation at least 25
predicate acts, including the derivative claims for diminution in
value of Nichols and its affiliates. Ten of these were adjudicated
in the pre-trial summary judgment. The trial court apparently
considered the predicate acts relating to Merit, Merit
Environmental, and Gymco not to be predicate acts as a matter of
law. See below infra at section II.B.3.b. The Harmony dilution
claim was conceded by the parties to involve fact issues, but, as
discussed above, its viability under RICO depended upon the
3
Although several of these cases involve criminal, rather
than civil, RICO charges, we note that bifurcation is even more
remarkable in criminal trials since the Federal Rules of Criminal
Procedure do not have an analogue to Federal Rule of Civil
Procedure 42(b).
14
existence of at least one other predicate act. The remaining
predicate acts were dependent upon a finding of fraud in the 1963
agreement4, an issue which was tried to the jury and found against
Conkling. It is clear to us that the court below had a specific
purpose in paring down the issues for jury resolution to the lowest
common denominator. If the 1963 agreement issue were to be
resolved in the defendants' favor, the RICO case could be decided
as a matter of law, thus simplifying the number of issues
ultimately submitted to the jury. See, e.g., Rossano v. Blue Plate
Foods, Inc., 314 F.2d 174, 176 (5th Cir.) (Issue severed need not
conclusively decide entire case on given claim; "[i]t is enough
that there be on the record at the time a substantial issue of fact
which, if determined in favor of defendant, will eliminate expense
for all concerned without prejudice to the rights of the
parties."), cert. denied, 375 U.S. 866, 84 S.Ct. 139, 11 L.Ed.2d 93(1963); see also In re Bendectin Litig., 857 F.2d at 308, 320
(recognizing the "numerous cases that have tried an individual
4
Conkling's claims that he was deprived of his relative
ownership—i.e., 8.69565%, rather than 8%—interests in National
Maintenance, International Maintenance, TSMC, BTL, TL, Blast,
Trebco, and IPS were all dependent upon a determination that he
rightfully owned 8.69565% of Nichols. The jury's finding that
the 1963 agreement was valid, and the inescapable conclusion that
Conkling was therefore entitled only to 8% of Nichols similarly
rendered the claims for an additional 8.69565% of National and
International Maintenance, TSMC, BTL, and TL fatally deficient
since the relative ownership in those companies was determined by
Nichols ownership ratio. Conkling admitted as much in his
portion of the pre-trial order. Moreover, since Blast, Trebco,
and IPS were each acquired by Nichols as a wholly-owned
subsidiary, the confirmation of Conkling's 8% interest in Nichols
demonstrated that he had a corresponding relative ownership in
each of these companies.
15
issue separately under circumstances that, had the issue been
decided in favor of the plaintiff, the trial would have had more
than two phases to it," and affirming district court's trifurcation
order).
Under these circumstances, we cannot find that the trial
court acted arbitrarily in severing the 1963 agreement predicate
act. Rather, the trial transcript reflects that the court was
concerned with preventing the jury from being needlessly confused
by the complexity of the case, and the court's actions were in line
with this interest. The court's concern about jury confusion was
justified, considering that the case involved over twenty years of
historical facts, a substantial number of witnesses, and countless
theories of recovery. In fact, trial on the single issue (and the
contract claim) took almost three and one-half weeks and involved
numerous Federal Rule of Evidence 104 hearings outside the presence
of the jury to determine the admissibility of evidence as to the
numerous contested factual issues. Moreover, this court's
long-standing rule that a district court is accorded great
deference on review with respect to its severance decision reflects
our perception that the trial court is in the best position to
determine whether bifurcation is appropriate.
The only possible prejudice Conkling could have suffered in
proceeding in this manner was his inability to aggregate the
allegations of fraud with respect to his multiple claims. However,
as seen above, the RICO predicate acts remaining for trial were
"dormantly dependent" upon a finding of initial fraud in the 1963
16
agreement, and Conkling "would have been not one whit more entitled
to a verdict [in the RICO case] merely because lengthy additional
testimony might have been taken on the separate and irrelevant
issues" relating to the dependent claims. Rossano, 314 F.2d at
176-77. The real injury to Conkling, as is evident in his argument
to this court, was not the bifurcation of trial, but the trial
court's subsequent resolution of the entire RICO case based upon
the jury finding as to the one predicate act, a point which we will
address below.
Finally, and although Conkling complains that he was not
given any notice of the dramatic severance until the weekend before
trial, we note that he would have been in no different a position
if the trial court had granted summary judgment on the RICO
predicate acts severed.5 The dependence of the spin-off predicate
acts upon the 1963 agreement was fully briefed by the defendants in
their motion for summary judgment, and, had the trial court found
no fact issue with respect to that agreement, it would have
necessarily dismissed these claims as well. Indeed, Conkling's own
"Statement of Plaintiffs' Claims" in the pre-trial order
acknowledged the dependence:
[The ownership relationship agreement between Conkling and
Turner] was established on the basis of Turner owning 85
shares of Nichols and Conkling owning 10 shares.... This
ownership relationship was what Turner and Conkling agreed
would always determine their relative ownership in all
5
In this regard, we observe that a district court may sever
a case on its own motion. FDIC v. Selaiden Builders, Inc., 973
F.2d 1249, 1253 (5th Cir.1992). Thus, the fact that no formal
request was made by either of the parties is not fatal to the
decision to stage separate trials.
17
subsequently formed entities.... Each time Turner formed a
new entity, ... Mr. Conkling was entitled to acquire his
proportionate ownership relative to Turner's. Turner later
formed National Maintenance, International Maintenance,
Harmony, TSMC, BTL, and TL. Each time one of these entities
was formed, Turner tacitly reaffirmed ... the ownership
relationship agreement with Conkling.... Because Turner had
reduced Mr. Conkling's ownership interest in Nichols through
the 1963 fraud, Conkling received less of an interest in those
entities than that to which he was entitled.
(emphasis added). Accordingly, once the jury decided that there
was no fraud in the 1963 agreement, the vitality of these pendent
claims then became a matter of law, thereby eliminating a large
portion of the litigation. We hold that the district court did not
abuse its discretion in staging the trial in this way.
B. The RICO Summary Judgments
Conkling next challenges the district court's grant of summary
judgment on his "agreement to repurchase" predicate act prior to
trial and on his entire RICO case after the jury's verdict
concluded the first phase of the bifurcated trial. With respect to
the pre-trial summary judgment, the trial court did not elaborate
upon the grounds for its decision. The trial court recited in its
post-trial summary judgment that the jury's finding "that the
defendants were not guilty of any fraud" decided the remainder of
the RICO case as a matter of law. We note the standard of review
and address each contention in turn.
1. Standard of review
Summary judgment is proper if "the pleadings, depositions,
answers to interrogatories and admissions on file, together with
affidavits, if any, show that there is no genuine dispute as to any
material fact and that the moving party is entitled to judgment as
18
a matter of law." FED.R.CIV.P. 56(c). Once a properly supported
motion for summary judgment is presented, the burden shifts to the
non-moving party who bears the burden of proof at trial to show
with "significant probative" evidence that there exists a triable
issue of fact. In re Municipal Bond Reporting Antitrust Litig.,
672 F.2d 436, 440 (5th Cir.1982). We review a summary judgment de
novo, applying the same criteria employed by the district court in
the first instance. Federal Deposit Ins. Corp. v. Dawson, 4 F.3d
1303, 1306 (5th Cir.1993); Fraire v. City of Arlington, 957 F.2d
1268, 1273 (5th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 462,
121 L.Ed.2d 371 (1992). Conkling implies that the district court
improperly reversed itself, having originally denied summary
judgment on certain issues, then later granting judgment on these
same issues pursuant to its sua sponte reconsideration after trial.
However, this court has held that a trial court may reconsider a
previously denied motion for summary judgment even in the absence
of new evidentiary material. Enlow v. Tishomingo County, Miss.,
962 F.2d 501, 507 n. 16 (5th Cir.1992).
2. The agreement to redeem
As one of the predicate acts in support of his RICO counts,
Conkling asserts that Turner entered into an agreement with him
over twenty years ago to purchase Conkling's stock at a "fair
price" in the event of termination while harboring a secret
intention never to perform that agreement. He argues that the
district court erroneously granted a pre-trial summary judgment on
this claim when fact issues abounded.
19
A contract to purchase and sell securities in the future can
constitute a "purchase or sale" of the securities actionable under
the federal securities laws. See Blue Chip Stamps v. Manor Drug
Stores, 421 U.S. 723, 750-51, 95 S.Ct. 1917, 1932, 44 L.Ed.2d 539(1975). However, Conkling did not assert an independent securities
fraud claim. Rather, he has used the alleged violations as
predicate acts under RICO. The defendants argue that Conkling has
not claimed damages as a result of this fraud claim, but instead
has requested specific performance of the agreement6, a remedy
which is not available to private litigants under RICO. The
district court apparently adopted this argument in deciding the
issue since it originally denied summary judgment with respect to
Conkling's breach of contract claim based upon the same allegations
as was this fraud claim and against which the defendants raised
virtually the same defenses save this one.
This court has not yet decided whether RICO affords private
litigants the option of equitable remedies,7 and our sister
6
In the trial court, the defendants pointed out that the
"damages" Conkling seeks are actually the book value of the stock
he currently owns and that Conkling himself has acknowledged that
he must relinquish all of the stock if he is awarded damages on
this claim.
7
In In re Fredeman Litig., we held that RICO did not
authorize a private party to seek an injunction freezing a
defendant's assets to secure a potential judgment since that
remedy was not available outside of RICO, and we were unwilling
to extend injunctive relief solely under RICO where the
legislative intent did not appear to permit it. 843 F.2d 821,
830 (5th Cir.1988). We specifically reserved ruling on "whether
all forms of injunctive relief and other equitable relief are
foreclosed to private plaintiffs under RICO." Id.20
circuits appear to disagree on the issue.8 However, we need not
resolve this dispute today since the district court's subsequent
grant of judgment as a matter of law on Conkling's corollary breach
of contract claim, see infra section II.D—finding that Conkling
failed to adduce sufficient evidence that there was a
contract—confirmed that summary disposition of this securities
fraud claim was proper.9 The premise of this fraud claim is that
Turner entered into an "oral agreement to purchase Conkling's stock
at the end of Conkling's employment." It was therefore critical
that Conkling establish an oral contract to "purchase" or "sell" to
sustain a fraud claim under federal securities laws. See Blue Chip
8
Contrast Religious Tech. Ctr. v. Wollersheim, 796 F.2d
1076, 1088-89 (9th Cir.1986) (expressly holding that injunctive
relief was not available under RICO), cert. denied, 479 U.S.
1103, 107 S.Ct. 1336, 94 L.Ed.2d 187 (1987) and Dan River, Inc.
v. Icahn, 701 F.2d 278, 290 (4th Cir.1983) (noting "substantial
doubt about whether RICO grants private parties ... a cause of
action for equitable relief") and Miller v. Affiliated Fin.
Corp., 600 F.Supp. 987, 994 (N.D.Ill.1984) (RICO does not permit
equitable remedies such as declaratory judgment and recision.)
with Bennett v. Berg, 685 F.2d 1053, 1064 (8th Cir.1982)
(implying that equitable relief may be available under RICO),
aff'd on reh'g, 710 F.2d 1361 (8th Cir.) (en banc), cert. denied,
464 U.S. 1008, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983) and Aetna
Cas. & Sur. Co. v. Liebowitz, 570 F.Supp. 908, 910-11
(E.D.N.Y.1983) (reasoning that Congress did not intend "to
deprive the district court of its traditional equitable
jurisdiction" to grant injunctive relief for alleged violations
of RICO statute), aff'd on other grounds, 730 F.2d 905 (2d
Cir.1984).
9
This court may affirm a grant of summary judgment on any
appropriate ground that was raised to the district court and upon
which both parties had the opportunity to introduce evidence.
Brewer v. Wilkinson, 3 F.3d 816, 820 (5th Cir.1993), cert.
denied, --- U.S. ----, 114 S.Ct. 1081, --- L.Ed.2d ---- (1994);
Chevron U.S.A., Inc. v. Traillour Oil Co., 987 F.2d 1138, 1146
(5th Cir.1993); Coral Petroleum, Inc. v. Banque Paribas-London,
797 F.2d 1351, 1355 n. 3 (5th Cir.1986).
21
Stamps, 421 U.S. at 751, 95 S.Ct. at 1932 (observing that "[u]nlike
respondent, which had no contractual right or duty to purchase Blue
Chip's securities, the holders of puts, calls, options, and other
contractual rights or duties to purchase or sell securities have
been recognized as "purchasers' or "sellers' for purposes of Rule
10b-5.") (emphasis added). His failure to do so was fatal to this
predicate act as a matter of law.
3. The case tried and resulting post-trial RICO summary judgment
The district court specifically held that Conkling's "claim
under RICO should be dismissed since the jury found no fraud on the
part of the defendants in this case." Implicit in this finding is
a conclusion that all but one10 of the remaining predicate acts were
dependent upon fraud in the 1963 agreement. The trial court had
already dismissed before trial many of the predicate acts
enumerated in Conkling's brief as either (i) derivative claims,
which Conkling did not have standing to bring, or (ii) actions that
could not be RICO predicate acts as a matter of law. The court
then apparently determined that the predicate acts remaining for
10
As noted above, the parties agreed that there were fact
issues as to whether the Harmony securities transaction could
constitute a predicate act, thus precluding summary disposition
of that claim, but standing alone, it could not constitute a RICO
"pattern." 18 U.S.C. § 1961(5); see also H.J., Inc. v.
Northwestern Bell Tel. Co., 492 U.S. 229, 237-38, 109 S.Ct. 2893,
2899-2900, 106 L.Ed.2d 195 (1989) ("The statement that a pattern
"requires at least' two predicate acts implies "that while two
acts are necessary, they may not be sufficient.' ") (quoting
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct.
3275, 3285 n. 14, 87 L.Ed.2d 346 (1985)); McLaughlin v.
Anderson, 962 F.2d 187, 192 (2d Cir.1992) (holding that the
failure to establish at least two predicate acts is fatal to RICO
claim).
22
jury resolution stemmed from the 1963 agreement11 and adjudicated
all of them as a matter of law when the jury failed to find fraud
in the execution of that agreement. Conkling argues that not all
of his predicate acts can be neatly pigeonholed into one of the
three enumerated categories. Specifically, he challenges the
district court's resolution of the Harmony, Merit, TIL, IPS, Blast,
and Trebco transactions. In his reply brief, Conkling belatedly
asserts that the use of an improper depreciation measure unfairly
deflated the book values of the companies in which he retained an
interest. We discuss each of these claims below.
a. Harmony
Although, as noted previously, the defendants concede a fact
issue with respect to the Harmony dilution claim, that transaction
standing alone could not support a RICO "pattern"—necessitating at
least two acts of racketeering activity—under section 1961 of Title
18. 18 U.S.C. § 1961; see also McLaughlin, 962 F.2d at 194
(affirming dismissal of section 1962(c) & (d) claims because
plaintiff failed to allege that "any defendant committed more than
a single act of racketeering").
b. Merit, Merit Environmental and Gymco
The Merit Environmental and Gymco claims appear to be
integrally related to the Merit transaction. However, neither of
these transactions suffices to defeat summary judgment on the RICO
case. Since Merit Environmental was a corporation wholly owned by
Merit, Conkling could have no claim that he was defrauded out of
11
See supra note 4.
23
any proportionate ownership in Merit Environmental unless he could
prove fraud with respect to Merit. Further, although Conkling
argues in a conclusory manner that he "was defrauded out of his
relative ownership in Merit [ ], Merit Environmental, and Gymco
pursuant to his ownership relationship agreement with Turner," he
does not articulate in his brief any basis for asserting the
predicate act of mail fraud with respect to Gymco. In fact, the
only evidence proffered by Conkling to defeat summary judgment on
the Gymco "predicate act" is evidence showing a fact issue with
respect to Turner's ownership of the partnership. Conspicuously
absent from Conkling's argument is any analysis of, or even
reference to, summary judgment evidence tending to prove a mail
fraud in connection with Gymco.12 In short, we have serious doubt
that the Gymco transaction was ever more than an attempt to put
before the jury evidence of Turner's "other crimes" under Federal
Rule of Evidence 404(b). Regardless of whether the district court
treated the Gymco facts as merely Rule 404(b) evidence or as an
attempted predicate act of mail fraud, it properly disposed of the
claim in summary judgment.
The claims relating to Merit are more difficult. Conkling
asserts in this court as below that he was "fraudulently deprived
by Turner of his rightful proportionate interest in Merit." This
transaction was clearly not derivative, nor was it a direct result
12
Indeed, none of the "183 items transmitted through the
U.S. mail to [Conkling] in furtherance of defendants' scheme to
defraud," or the numerous mailings to the Louisiana Secretary of
State referred to by Conkling in his brief even relates to Gymco.
24
of the 1963 agreement. However, we do not believe it was a viable
predicate act by the time of trial. The defendants pointed out
that Conkling waived any claim for damages from Merit, concluding
that he could introduce the evidence under Federal Rule of Evidence
404(b) as "evidence of other crimes, wrongs, or acts," which are
only admissible for limited purposes, "such as proof of motive,
opportunity, [or] intent...." FED.R.EVID. 404(b). Conkling admits
that he waived any damage claim with respect to Merit but contends
that he did not waive the predicate act itself. He argues that it
is not necessary to demonstrate injury flowing from each predicate
act, but only from some in order to show a pattern of racketeering
activity. See, e.g., Deppe v. Tripp, 863 F.2d 1356, 1366-67 (7th
Cir.1988); Town of Kearny v. Hudson Meadows Urban Renewal Corp.,
829 F.2d 1263, 1268 (3d Cir.1987); Marshall & Ilsley Trust Co. v.
Pate, 819 F.2d 806, 809 (7th Cir.1987); Panna v. Firstrust Sav.
Bank, 760 F.Supp. 432, 437 n. 6 (D.N.J.1991). Although the record
is somewhat ambiguous on this point, it appears to us that Conkling
waived the entire predicate act.13 During trial, Conkling's counsel
admitted that he had previously agreed to abandon the damage claim
on Merit because he understood the district court to have ruled
13
We asked the parties for additional briefing on whether
Conkling had waived the Merit claims as predicate acts since the
defendants had so intimated in their brief. The transcript shows
that Conkling waived the Merit claim, assuming that he could
admit the evidence under Rule 404(b), and reveals a series of
conflicting positions taken by Conkling on this issue. Although,
as acknowledged above, the sequence of events is less than
clear—due largely to the fact that several critical, pre-trial
conferences on this issue were unrecorded—our best reading of the
record leads us to conclude that Conkling abandoned Merit as a
predicate act.
25
that the evidence could be admitted under Rule 404(b) at a prior
status conference. The district court apparently considered the
transaction as being at best "other crimes" evidence as reflected
in the following exchange:
MR. BECKER [Conkling's counsel]: .... Do you remember, we
talked about it. I agreed to give up the damage claim on
Merit because you said it was admissible under 404(b) at the
status conference.
THE COURT: I didn't say that it was totally admissible....
[Merit] could not even be a damage claim because it wasn't
prayed for, number one. Number two, what I said was—what I
said was the fact that it is not a damage claim doesn't mean
that it can[not] be used for another purpose including 404(b),
but I never made a ruling that it was absolutely admissible
under 404(b) at that time.
It is entirely inconsistent for Conkling to claim that the Merit
evidence is admissible under Rule 404(b) and yet to argue that it
constitutes a predicate act. A predicate act, by its very nature,
is evidence directly bearing on an issue in the case which would
not need to be screened through Rule 404(b).
Important in this regard is the fact that several documents of
record reflect that the status conference referred to by Conkling's
counsel in the above-cited dialogue took place prior to the
district court's severance of the RICO claim. Accordingly,
Conkling's voluntary waiver of the Merit transaction as a claim
under the belief that the evidence would be admitted under Rule
404(b) could not have been simply a response to the trial court's
ruling that only one predicate act would be tried.
c. TIL
Conkling also claims that the TIL predicate acts should not
have been decided on summary judgment. Conkling admits that TIL
26
is, and always has been owned by Turner and his family. In fact,
based upon Turner's representations that "TIL would solely be an
estate planning tool to enable Turner to hold all of his and his
family's stock in Nichols and Harmony, ... Conkling agreed that he
would not be entitled to acquire his relative ownership in TIL."
Although it is undisputed that the ownership of TIL remains
exclusively in Turner and his family, Conkling claims that the
placement of TIL as chief operating company over Nichols and its
affiliates somehow changed its nature and entitled him to
ownership. A closer look at the allegations and evidence, however,
shows that Conkling's damages are based upon TIL's profits from the
management of the Nichols-related companies, which is a derivative
claim. Since Conkling does not have standing to raise derivative
claims on behalf of the companies in which he holds stock, see
Adams-Lundy v. Association of Professional Flight Attendants, 844
F.2d 245, 250 (5th Cir.1988), the district court properly granted
judgment on this claim in favor of the defendants.
d. IPS, Blast, and Trebco
IPS, Blast, and Trebco were each acquired by Nichols as a
wholly-owned subsidiary, and the jury's confirmation of Conkling's
87 interest in Nichols demonstrated that he retained relative
ownership in each of these companies. Therefore, these claims were
properly resolved in the post-trial summary judgment as "dormantly
dependent" upon a determination of fraud in the 1963 agreement.
e. Depreciation
Although Conkling's reply brief makes reference to the
27
improper depreciation claim numbered as predicate act 17, we do not
"consider arguments belatedly raised after appellees have filed
their brief" in the absence of manifest injustice. Najarro v.
First Fed. Sav. & Loan Ass'n, 918 F.2d 513, 516 (5th Cir.1990);
see also Smith v. Lucas, 9 F.3d 359, 367 n. 16 (5th Cir.1993). It
appears to us that Conkling waited to raise this argument until his
reply brief in order to evade the fifty-page limit set forth in
Federal Rule of Appellate Procedure 28(g), and thus it is not
"manifestly unjust" for this court to refuse to address it. See,
e.g., Neeley v. Banker's Trust Co., 757 F.2d 621, 634 n. 18 (5th
Cir.1985) (noting that the appellant's brief exceeded the 50-page
limit and "warn[ing] counsel that violations may result in the
Court's striking of their briefs sua sponte ").
f. In conclusion, ...
The trial court correctly perceived that the predicate acts
remaining for jury resolution—with the exception of Harmony—were
contingent as a matter of law upon a finding of fraud in the 1963
agreement. Accordingly, we hold that the trial court did not err
in granting summary judgment to the defendants on the RICO case.
C. Breach of Fiduciary Duty
The district court determined "that there is no factual or
legal basis to support [Conkling's] breach of fiduciary claim."
Accordingly, it granted summary judgment on Conkling's breach of
fiduciary duty claim. Although Conkling's brief on this issue is
almost entirely conclusory, inappropriately incorporating briefing
28
filed below,14 he has arguably raised the claim on appeal, and we
will employ our best efforts to review the grant of summary
judgment on this claim as applied to each factual circumstance.
Turner contends that the fiduciary duty claims are based upon
the same facts already found to be fatally deficient as causes of
action as discussed both supra and infra. However, after careful
review of the record on appeal, we have not found that Turner moved
for summary judgment on all of the breach of fiduciary duty
issues.15 Specifically, Turner did not move for summary judgment
14
Attorneys cannot circumvent the fifty-page limit of
Federal Rule of Appellate Procedure 28(g) by incorporating by
reference a trial memorandum. Walters v. First Tenn. Bank, N.A.,
855 F.2d 267, 275-76 n. 5 (6th Cir.1988), cert. denied, 489 U.S.
1067, 109 S.Ct. 1344, 103 L.Ed.2d 812 (1989); see also Katz v.
King, 627 F.2d 568, 575 (1st Cir.1980) ("If counsel desires our
consideration of a particular argument, the argument must appear
within the four corners of the brief filed in this court."). Cf.
Neeley v. Banker's Trust Co., 757 F.2d 621, 634 n. 18 (5th
Cir.1985) (noting that the appellant's brief exceeded the 50-page
limit and "warn[ing] counsel that violations may result in the
Court's striking of their briefs sua sponte.").
15
Many of the fiduciary duty claims were raised on summary
judgment below. For example, Turner argued in his summary
judgment papers that Conkling did not have standing to bring any
of the asserted derivative claims as a matter of law, a position
adopted by the district court. Moreover, and as discussed above,
Conkling waived any damage claim with respect to the Merit
transactions, and we interpret this waiver to include damages for
breach of fiduciary duty. There is also an indication in
Conkling's Supplemental Memorandum in Opposition to Defendants'
Motions for Summary Judgment filed on December 11, 1991, that the
court below sua sponte raised the issue of whether its decision
in Nichols Constr. Corp. v. St. Clair, 708 F.Supp. 768(M.D.La.1989), aff'd mem., 898 F.2d 150 (5th Cir.1990), was
"applicable to the pendent breach of fiduciary duty claim
asserted in this case by" Conkling. The Nichols case addressed
St. Clair's similar allegations about an agreement to redeem,
which the trial court rejected. Thus, these fiduciary duty
claims appear to have been addressed and resolved in the summary
judgment framework.
29
in the court below on the basis that the Harmony dilution claims
pled as a breach of fiduciary duty could be summarily adjudicated;
rather, he argued only that Conkling did not have standing to
assert Harmony claims derivatively.16 In fact, Turner has conceded
on appeal that a fact issue exists with respect to the Harmony
dilution transaction. Although that claim, as noted above, was
properly adjudicated in the RICO context on the basis that it was
the only predicate act available to Conkling, we conclude that the
conceded fact issue preserves it in the fiduciary duty context.
Similarly, Turner did not request summary disposition of the
fiduciary duty claims relating to the 1963 agreement and its
progeny. The summary judgment arguments and the jury issue went to
whether any of the actions or omissions stemming from that
agreement were fraudulent—not whether they constituted a breach of
any fiduciary duty. With respect to these claims, therefore,
Turner could not have met his initial summary judgment burden of
pointing out an absence of any fact issues by identifying portions
of the pleadings, discovery, and affidavits which support its
position. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106
S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Thus, the trial court's
grant of summary judgment on these fiduciary duty issues was in
error.
16
As noted above, the Harmony transaction, like many of the
others, involved both derivative claims and individual claims
between which the district court distinguished in granting and
clarifying summary judgment. The clarification order explains
that the trial court specifically disposed of the Harmony
derivative claims, but retained the dilution claims.
30
D. Rule 50(a) Adjudication of Conkling's Breach of Contract Claim
The district court granted judgment as a matter of law on
this claim after the close of Conkling's case, and we review its
decision de novo, applying the same legal standard as it used.
Omnitech Int'l, Inc. v. The Clorox Co., 11 F.3d 1316, 1322-23 (5th
Cir.1994). Judgment as a matter of law is proper after a party has
been fully heard by the jury on a given issue, and "there is no
legally sufficient evidentiary basis for a reasonable jury to have
found for that party with respect to that issue." FED.R.CIV.P.
50(a). In evaluating such a motion, formerly referred to as a
motion for directed verdict, the court is to view the entire trial
record in the light most favorable to the non-movant, drawing all
factual inferences in favor of Conkling, the non-moving party, and
leaving credibility determinations, the weighing of the evidence,
and the drawing of legitimate inferences from the facts to the
jury. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106
S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); see also Becker v.
PaineWebber, Inc., 962 F.2d 524, 526 (5th Cir.1992). The "decision
to grant a directed verdict ... is not a matter of discretion, but
a conclusion of law based upon a finding that there is insufficient
evidence to create a fact question for the jury." In re Letterman
Bros. Energy Sec. Litig., 799 F.2d 967, 972 (5th Cir.1986) (citing
Lubbock Feedlots, Inc. v. Iowa Beef Processors, Inc., 630 F.2d 250,
269 n. 22 (5th Cir.1980)), cert. denied, 480 U.S. 918, 107 S.Ct.
1373, 94 L.Ed.2d 689 (1987).
Article 2439 of the Louisiana Civil Code requires three
31
circumstances to concur to confect a contract: the thing sold, the
price, and mutual consent. LA.CIV.CODE ANN. art. 2439 (West 1952).
Article 2464 requires that the price of the sale be "certain," or,
as the provision further defines it, "fixed and determined by the
parties." LA.CIV.CODE ANN. art. 2464 (West 1952). To sustain a
cause of action for breach of an oral agreement for value in excess
of $500, a party must prove its existence by at least one witness
and corroborating circumstances. LA.CIV.CODE ANN. art. 1846 (West
1987); see also Dupuy v. Riley, 557 So.2d 703, 707-08 (La.Ct.App.)
(recognizing that oral contract for transfer of securities may be
proven under article 1846 by one credible witness and proof of
corroborating circumstances), writ denied, 563 So.2d 878(La.1990).17 After a lengthy trial on this issue and the 1963
agreement, the trial court found that, as a matter of Louisiana
law, no oral agreement existed whereby Turner agreed to purchase
Conkling's stock for "fair value" upon termination of Conkling's
employment with Nichols.18 The court first concluded that the
17
In 1978, the Louisiana Legislature enacted a statute of
frauds for securities transactions, requiring that such contracts
be put into writing, see LA.REV.STAT.ANN. § 10:8-319 (West 1993),
and thus Dupuy v. Riley, 557 So.2d 703, 707-08 (La.Ct.App.), writ
denied, 563 So.2d 878 (La.1990), which was predicated entirely on
a pre-1978 decision, has been called into question on this point.
See Levinson v. Charbonnet, 977 F.2d 930, 932 (5th Cir.1992).
However, since the alleged contract between Turner and Conkling
was entered into prior to 1963, the recent statute has no
application in this case.
18
The trial transcript reflects that Conkling's counsel
conceded that Conkling had no agreement to redeem his stock with
any of the defendant corporations. Accordingly, the trial court
summarily dismissed that claim as abandoned. His allegations
were therefore limited to an oral agreement with Turner that
Turner would repurchase Conkling's stock.
32
evidence was legally insufficient to support the existence of an
agreement to repurchase. Essentially, the only person to testify
that the agreement was confected was Conkling, who admitted that he
could not remember any of the terms of the agreement or any
statements made by Turner. Although the Louisiana Supreme Court
has made clear that a "plaintiff may, himself, fulfill the
requirement for at least one credible witness," Samuels v.
Firestone Tire & Rubber Co., 342 So.2d 661, 662 (La.1977), the
court below did not consider Conkling's testimony to be
sufficiently specific to verify the existence of an oral contract,
concluding that, at best, the evidence showed that Conkling had an
"understanding" of Turner's obligation.
The court below further found that, even if it construed
Conkling's "understanding" as a binding agreement, there was no
evidence to corroborate the oral agreement. Conkling responded, as
he does before this court, that Louisiana law does not require that
a plaintiff provide "independent proof of every detail of [his]
testimony." Samuels, 342 So.2d at 662; see also Taylor v. Dowden,
563 So.2d 1294, 1297 (La.Ct.App.) ("[O]nly general corroboration
must be shown."), writ denied, 568 So.2d 1057 (La.1990). He argued
that (i) Turner's admission that he "told Mr. Conkling that when
Conkling left the company his stock would be redeemed at a "fair
price,' " (ii) Turner's handwritten notes referencing a potential
purchase of Conkling's "equity" in the event of termination, and
(iii) inferences he drew from certain patterns of events, were
sufficient to corroborate generally his testimony that an agreement
33
was reached.
The trial court nonetheless determined that any oral contract
failed for lack of a definite price, a term which must be fixed and
determined in order to create a binding contract of sale under
Louisiana law. LA.CIV.CODE ANN. art. 2464 ("The price of sale must
be certain, that is to say, fixed and determined by the parties.");
see also Louisiana Power & Light Co. v. United Gas Pipe Line Co.,
642 F.Supp. 781, 801 (E.D.La.1986) (A "price term [is] "essential
to the contract of sale,' and a failure to agree to such a term
would amount to a failure to establish a sales contract at all.").
The court below observed that there was nothing in the record to
show that the parties had a meeting of the minds as to how to
compute "fair value" and rejected Conkling's argument that "fair
value" was a sufficiently certain price under Louisiana law. We
agree. Although parties to a contract need not agree to a specific
price, they must agree to some ascertainable method to arrive at
that price in order to have a binding contract of sale under
Louisiana law. LA.CIV.CODE ANN. arts. 2464 & 2565; Compare
Directional Wireline Servs., Inc. v. Tillett, 552 So.2d 1201, 1214
(La.Ct.App.1989) (Even though parties' agreement provided that
"book value" would be used to compute stock redemption price,
dispute over proper procedure to calculate "book value" showed that
there was no "meeting of the minds" as to a definite price term and
defeated contract as a matter of law) with Hearty Burger of Harvey,
Inc. v. Brown, 407 So.2d 806, 808 (La.Ct.App.1981) (holding that
evidence supported trial court's conclusion that defendant knew
34
exact amount of principal obligation to be assumed, and defendant
could not complain that disagreement over the amount of interest
outstanding rendered the contract to assume plaintiff's obligation
fatally defective for lack of definite price; however, contested
interest would not be included in amount of sale). "[I]f the
parties have bound themselves in such a way that price may be later
determined as a consequence of their consent without any new act of
volition on their part, then the price is certain and the sale is
valid." Shell Oil Co. v. Texas Gas Transmission Corp., 210 So.2d
554, 560 (La.Ct.App.), writ denied, 252 La. 247 & 250, 214 So.2d
165 & 166 (1968).
Conkling cites to the Louisiana Supreme Court's opinion in
Benglis Sash & Door Co. v. Leonards, 387 So.2d 1171, 1172-73
(La.1980), for the proposition that "the parties can consent to buy
and sell a certain thing for a reasonable price, and when they do,
the contract for sale has been perfected. The essential thing is
that there is a meeting of the minds (as opposed to a disagreement)
as to price." In our view, the trial court properly confined the
holding in Benglis to its specific fact-setting. The parties in
Benglis had a prior course of dealings and a sufficiently mutual
understanding of price terms based upon this relationship, as
evidenced by the fact that the defendant did not object to the
price ultimately charged. Id. at 1173. Benglis did not
eliminate—but rather reemphasized—the necessity of showing that the
parties reached a meeting of the minds as to that term. In fact,
the cases decided after Benglis have not read it, as would Conkling
35
in this case, as a wholesale revision of the definite price
requirement of article 2464, but rather, as limited to its facts,
and have continued to require evidence of an objectively
ascertainable price. See Hunt v. Gulftrust Fund No. Fifteen, Inc.,
606 So.2d 25, 27 (La.Ct.App.1992) (Because parties to real estate
sale disagreed as to who would be responsible for mortgage payments
after sale, the conflicting testimony established that there had
been no meeting of the minds as to a definite price term.);
Sherman v. State Farm Mut. Auto. Ins. Co., 413 So.2d 644, 648-49
(La.Ct.App.) (distinguishing Benglis on grounds that the parties in
case presented had insufficient knowledge of amount of mortgage to
be assumed, and thus, price was not ascertainable "by computation
of definite facts"), writ denied, 414 So.2d 776 (La.1982); see
also Rutgers, State Univ. v. Martin Woodlands Gas Co., 974 F.2d
659, 662 (5th Cir.1992) (applying Shell Oil certainty test and
holding that contract which provided that parties would renegotiate
price terms each year and set a limit upon prospective increases in
price only with no corresponding floor lapsed after the end of the
first year for lack of a definite agreement as to future price);
cf. Anderson v. Namias, 477 So.2d 907, 909-10 (La.Ct.App.1985)
(Evidence clearly showed that defendant understood his deposit
constituted one-half of the sales price and confirmed that the
parties had agreed to a certain price.).
Wegman v. Central Transmission, Inc., 499 So.2d 436(La.Ct.App.1986), writ denied, 503 So.2d 478 (La.1987), does not
alter our analysis. Conkling reads Wegman to uphold as definite
36
the use of the price term "equitable price," as amounting to a
"fair price" to which the plaintiff was found to be contractually
entitled. Conkling misreads Wegman. In that case, the parties had
several agreements relating to gas production and sale. Under the
"gas purchase agreement," the defendant was to buy gas from the
plaintiff, Wegman, for a certain price. A supplemental agreement
further provided that the parties would negotiate and come to an
"equitable agreement" as to price if a designated third party did
not purchase the gas from the defendant. The defendant—who sold
gas to parties other than the one designated in the parties'
agreement—argued that reading the two agreements together would
yield an unenforceable agreement for lack of a certain price. The
Louisiana court of appeals summarily rejected that argument,
holding that the two contracts could be read together without
eliminating the definite price term in the first. Alternatively,
it concluded that Wegman could recover a "fair price" for gas which
had been appropriated from his leased interests but improperly
credited to the production of other wells. Id. at 447 ("[W]hether
the contract specifies a price or not, Wegman is entitled to be
paid for his gas. The court must determine the fair market value
of Wegman's gas and award him that amount."). Although the court
of appeals cited to article 1995 of the Louisiana Civil Code,19 the
provision governing damages for breach of an obligation, its
analysis is in quantum meruit—i.e., that Wegman was entitled to
19
See LA.CIV.CODE ANN. art. 1995 ("Damages are measured by the
loss sustained by the obligee and the profit of which he has been
deprived.").
37
payment for gas previously acquired by the defendant. Id. Thus,
we do not interpret Wegman as permitting an "equitable" price to be
sufficiently definite to support a contract.
Moreover, in fact-settings more akin to that presented, the
Louisiana courts have found such terms as "book value," "market
rise," and "prevailing price" not to be sufficiently ascertainable
and thus fatal to the confection of a contract. See, e.g.,
Directional Wireline, 552 So.2d at 1214 (holding that parties'
failure to agree as to the method used to calculate "book value" of
stock to be purchased precluded meeting of the minds as to
essential element of price); Princeville Canning Co. v. Hamilton,
159 So.2d 14, 17, 18-19 (La.Ct.App.1963) (Contract providing that
sale prices will increase according to "market rise" does not
provide an objective method by which the price of the sale can be
established with certainty when there is no agreement as to a
method by which "market rise" can be determined.); Shell Oil, 210
So.2d at 558 (rejecting "prevailing price" as being too indefinite
without reference to a specific market from which it can be readily
discerned).
Similarly, no "agreed" price for Turner to redeem Conkling's
stock can be determined with any certainty because there is no
discernible agreement as to any method by which "fair value" could
be computed. Conkling suggests that the Nichols' board minutes
reflecting Turner's request for permission to negotiate a
redemption price based upon the underlying assets of the
corporation and his statement that he "might have to redeem" the
38
stock of the minority shareholders is conclusive proof that the
parties had previously agreed to a definite method to calculate
fair value. Conkling understands these portions of the minutes as
"mean[ing] that Turner was authorized to negotiate a price based
upon the value of the underlying assets of the companies, and if
they could not agree on a value for the underlying assets, then an
independent appraisal would be used." He offers the original
agreements between Nichols and its shareholders (including Turner
and Conkling) in 1962 and 1963—which included independent appraisal
clauses and certain guidelines for calculating redemption values—as
providing the method by which he and Turner would compute the "fair
value" of the stock. There are several problems inherent in
looking to the 1962 and 1963 agreements for guidance. First, the
two agreements have conflicting provisions regarding valuation.20
Moreover, the 1962 agreement was superseded by the 1963 agreement,
and, in 1966, the parties expressly voided that redemption formula
as well. Finally, and most importantly, Conkling did not testify
that he and Turner agreed to use any formulas set forth in these
agreements, but rather that he believed that fair value would be
calculated in his agreement with Turner as it was in the Nichols
agreements. His beliefs in this regard are merely speculation and
do not evidence that the parties reached a consensus as to a method
by which "fair value" could be calculated. Thus, Conkling's
20
For example, in the 1962 agreement, the redemption price
would be calculated by a specific formula if the appraisers
determined the per share value of the stock to exceed $1,000.
There is no such provision in the 1963 agreement.
39
argument that these agreements offer instruction for agreed
redemption values is strained. In sum, we find that, in the case
presented, "fair value" is "not capable of being ascertained by
computation of definite facts; it can not be deemed certain in the
present case." Sherman, 413 So.2d at 648. Accordingly, we affirm
the district court's elimination of this claim from the jury's
consideration.
E. Subsequent Oral Modification Evidence
Conkling next takes issue with the trial court's instruction
to the jury to disregard evidence of an alleged subsequent oral
agreement modifying the 1962 agreement. Conkling testified at
trial that, after the written agreement was executed in 1962,
Turner modified the agreement by giving him a stock certificate and
informing him that the stock was in exchange for previous services.
However, the district court interrupted his testimony in this
regard and instructed the jury to disregard any agreements "except
for the 1962 agreement and the 1963 agreement.... The witness can
testify what happened post [19]63 but not pre [19]63 regarding
other agreements between the parties." Conkling argues that the
subsequent oral modification of the 1962 agreement should have been
admitted and directs our attention to Article 1848 of the Louisiana
Civil Code, providing that:
Testimonial or other evidence may not be admitted to negate or
vary the contents of an authentic act or an act under private
signature. Nevertheless, in the interest of justice, that
evidence may be admitted to prove such circumstances as a vice
of consent, or a simulation, or to prove that the written act
was modified by a subsequent and valid oral agreement.
LA.CIV.CODE ANN. art. 1848 (West 1987) (emphasis added).
40
Conkling's argument that the oral agreement modified the
earlier, 1962 agreement misses the mark. The focus of this case is
upon the written, 1963 agreement. Under Conkling's own version of
the facts, this alleged oral agreement was entered into before the
1963 agreement. The pertinent provision of Article 1848 limits
consideration of such evidence to "subsequent and valid oral
agreement[s]" in particular situations, in which "the interest of
justice" will be best served by introducing the testimony.
Similarly, the cases are legion that parol evidence may not be
admitted to vary the terms of a written contract except in the
above-enumerated circumstances. Billingsley v. Bach Energy Corp.,
588 So.2d 786, 791 (La.Ct.App.1991); Bank of Coushatta v. Patrick,
503 So.2d 1061, 1065-66 (La.Ct.App.), writ denied, 506 So.2d 1231(La.1987); Texaco, Inc. v. Newton and Rosa Smith Charitable Trust,
471 So.2d 877, 881-82 (La.Ct.App.), writ denied, 475 So.2d 1104(La.1985). The facts presented do not warrant such consideration.
Moreover, the 1963 agreement—voluntarily executed by
Conkling—provided that it was "the sole agreement by and between
the parties in connection with the purchase or sale of any and all
interests in and to Nichols Construction Corporation, being
substituted for any previous agreement or understanding, oral or
otherwise" (emphasis added). The agreement was signed by both
Turner and Conkling as "parties." The entire purpose of the 1963
agreement was to provide a mechanism whereby Conkling could acquire
stock in Nichols. The plain terms of the 1963 agreement allocated
41
8% of the stock outstanding to Conkling.21 Pursuant to the 1963
agreement, the minority shareholders, including Conkling, were to
pay $100 for their stock, and the undisputed facts show that they
paid the amount and received the certificate. Under the facts
presented, the inclusion of the merger clause leads us to conclude
that the clause correctly reflected the parties' intentions and
consequently precludes evidence of any alleged prior agreement.
Omnitech, 11 F.3d at 1328 (holding that a merger clause "correctly
reflect[ing] the parties' intentions ... should thus be enforced as
written."); Johnson v. Orkin Exterminating Co., 746 F.Supp. 627,
633 (E.D.La.1990) (same). First, we note that, during the period
between the two agreements, several circumstances had changed
considerably the ownership distribution of Nichols' stock—most
notably, the redemption of Eaton's stock. It appears to this court
that the whole purpose in entering into the 1963 agreement was to
confirm relative ownership and that, had Conkling believed the
document did not accurately reflect the distribution, he would have
objected at that point. It is completely inconsistent for Conkling
to harbor a secret belief that he was entitled to a larger
percentage and yet to execute a document that unequivocally set
21
As noted supra at section I.A, the ownership interests in
Nichols were apportioned as follows:
Bert S. Turner 76 per cent
Carmen L. St. Clair 8 per cent
Richard L. Conkling 8 per cent
J.B. Millican 8 per cent
42
forth his ownership rights in such explicit terms. Moreover,
Conkling was able to introduce evidence that he executed the 1963
agreement under fraudulent circumstances, and the jury rejected
that argument in resolving the issue against him. Finally,
Conkling's own testimony revealed that he (i) received 8% of
Nichols' stock in accordance with the 1963 agreement, (ii)
reaffirmed his ownership interest as being 8%, rather than
8.69565%, in numerous documents, including tax returns and
sub-chapter S conversion documents, (iii) received dividends based
upon an 8% interest, and (iv) acquired relative ownership in
affiliated companies based upon the 8% interest, yet never breathed
a word of objection to Turner. For these reasons, we hold that the
trial court properly preserved the jury's focus upon the evidence
relevant to the actual execution of the 1963 agreement to determine
whether it was tainted by fraud and properly excluded testimony of
this alleged oral agreement.
F. Claims Against Carpenter
The defendants defend the summary judgment on Conkling's
causes of action relating to Carpenter in an abundance of caution,
though Conkling did not address these claims in his appellant's
brief. Conkling did respond to the defendants' contentions about
Carpenter in his reply brief; however, as noted above, this court
does not, in the absence of manifest injustice, consider claims
raised for the first time after the opening briefs are filed by the
appellant and appellee(s). Najarro, 918 F.2d at 516; see also
Smith v. Lucas, 9 F.3d at 367 n. 16. Conkling offers, and we can
43
discern, no reason why he failed to bring up this alleged error in
his initial brief. Accordingly, we see no manifest injustice in
refusing to address the issue.
III. Conclusion
For the foregoing reasons, we reverse and remand the district
court's summary adjudication of Conkling's breach of fiduciary duty
claims as described above. In all other respects, we affirm the
judgment of the district court. Each party is to bear his own
costs of this appeal.
AFFIRMED in part, REVERSED and REMANDED in part.
44