ContiCommodity Services, Inc. v. Ragan ( 1995 )

United States Court of Appeals,
Fifth Circuit.
No. 94-20362.
CONTICOMMODITY SERVICES, INC. and Continental Grain Company,
Plaintiffs-Counter-Defendants-Appellees,
v.
David J. RAGAN, et al., Defendants,
David J. Ragan and Joe O. Ragan, Defendants-Counter-Plaintiffs-
Appellants.
Sept. 12, 1995.
Appeal from the United States District Court for the Southern
District of Texas.
Before POLITZ, EMILIO M. GARZA and STEWART, Circuit Judges.
STEWART, Circuit Judge:
As part of multidistrict litigation, ContiCommodity Services,
Inc. and Continental Grain Company (together referred to herein as
"Conti")1 filed suit against David J. Ragan and Joe O. Ragan for
damages arising from financial market trading activity attendant to
the closing of Conti's Houston branch office. ContiCommodity
Services, Inc. v. Ragan, No. H-84-4652 (S.D.Tex.); In re
ContiCommodity Services, Inc., Securities Litigation, 733 F. Supp.
1555 (N.D.Ill.1990). The Ragans filed a counterclaim against
Conti, asserting inter alia that these damages arose because Conti
had breached its contract to finance their debit balances and had
made defamatory statements about David Ragan. The district court
granted in part Conti's motion for summary judgment against the
1
ContiCommodity Services, Inc., was a fully owned subsidiary
of Continental Grain Company.
1
Ragans, and the Ragans appeal. We affirm.
FACTS
In 1981, Conti hired David Ragan to work in its Houston, Texas
branch office. He conducted arbitrage trading, ranging from less
speculative hedged positions to more speculative cash trading, for
his customers and for his own account.2 Conti routinely loaned
money to Ragan's customers to finance trading activity, so that the
customers had to deposit only a percentage of the transaction
amount. The value of the customer's securities or commodities
"position" could be expressed simultaneously in several ways which
include (1) the net3 face value of the position; (2) as the net
market value of the position; (3) as the net face or market value
of the position, minus the amount financed and associated fees or
interest cost. By early 1984, the Houston branch office had
2
"Arbitrage trading is the simultaneous purchase and sale of
the same or equivalent securities or commodities in different
markets or on different exchanges at different prices, in order
to profit from the price differences between markets." In re
ContiCommodity Services, Inc., Securities Litigation, 733 F. Supp.
at 1562.
3
The securities or commodities could be (1) purchased in
anticipation of an increase in market value and later sold; (2)
sold—or borrowed from elsewhere and sold (i.e., "sold short")—in
anticipation of a decrease in market value and later purchased
for return to the pre-sale owner of the security. These various
options could be done at the same time in different markets, or
at different times but with the same security or commodity, as
noted above in footnote 2. "Net" value, as used in this
sentence, refers to the net value of the purchases and the short
sales. In addition, the cash securities could be purchased and
held until maturity, at which time the face value and interest
due on the security could be used to repay any amount that was
financed.
2
sustained losses and Conti decided to close it.4 The instant facts
arise from Conti's decision to close out the customers' accounts in
conjunction with the closing of its Houston office.
Conti filed suit against David Ragan, alleging fraudulent and
fictitious transactions. The Ragans filed a counterclaim against
Conti. In this counterclaim, David Ragan alleged that Conti
breached its contract with him, tortiously interfered with David
Ragan's employment contract, reputation, and prospective customer
relationships by making defamatory statements, and fraudulently
concealed its decision to close the Houston office. Joe Ragan
alleged that Conti breached its contractual and fiduciary
obligations by closing out his positions and thereby keeping him
from reducing or offsetting his losses.
Many of the claims of the numerous parties to this case and
related cases in this multidistrict litigation were disposed of in
Illinois before United States District Judge Hart and are
documented in a written opinion. See In re ContiCommodity
Services, Inc., Securities Litigation. Among Judge Hart's rulings
were summary judgments entered on several of the Ragans' claims
against Conti. Judge Hart transferred the remaining claims between
Conti and the Ragans to the United States District Court for the
Southern District of Texas where United States District Judge Black
4
By the time it closed on May 24, 1984, Conti's Houston
branch office had incurred more than $55 million in trading
losses for the accounts of its arbitrage and speculative
customers. The closing of the Houston office spawned numerous
lawsuits in which approximately two million documents were filed.
3
rendered a final summary judgment against the Ragans on their
remaining claims. The Ragans appeal this final summary judgment,
as well as some of the judgments entered by Judge Hart. The
parties agree that Texas law is applicable to these state law
claims.
DISCUSSION
The Ragans argue that the Texas district court erred in
entering summary judgment because the evidence was sufficient to
defeat the motion for summary judgment and because it reached
issues that either were not appealed or had been decided by Judge
Hart.
We review the district court's grant of summary judgment de
novo. International Shortstop, Inc. v. Rally's, Inc., 939 F.2d
1257, 1263 (5th Cir.1991), cert. denied, 502 U.S. 1059, 112 S. Ct.
936, 117 L. Ed. 2d 107 (1992). Summary judgment is appropriate when
the moving party shows that there is no genuine issue of material
fact. Id. The moving party may make this showing by pointing out
the lack of evidence to support the nonmoving party's case. Duffy
v. Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir.1995);
Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 913 (5th Cir.1992),
cert. denied, --- U.S. ----, 113 S. Ct. 98, 121 L. Ed. 2d 59 (1992).
Once this showing is made, summary judgment is proper against the
nonmoving party when the nonmoving party "fails to make a showing
sufficient to establish the existence of an element essential to
that party's case, and on which that party will bear the burden of
proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 321, 106
4
S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986); Duffy, 44 F.3d at 313-14.
In order to defeat a properly supported motion for summary
judgment, the nonmoving party must direct the court's attention to
admissible evidence in the record which demonstrates that it can
satisfy a "fair-minded jury" that it is entitled to a verdict in
its favor. International Shortstop, Inc., 939 F.2d at 1263;
Howell, 897 F.2d at 192. At this point, the mere allegations in
the complaint are not sufficient; the non-movant is required to
identify specific evidence in the record, and to articulate the
"precise manner" in which that evidence supported their claim.
Id.; Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir.1994), cert.
denied, --- U.S. ----, 115 S. Ct. 195, 130 L. Ed. 2d 127 (1994).
We shall address the summary judgment entered as to David
Ragan and Joe Ragan, respectively.
A. Summary Judgment Against David Ragan5
Criminal charges were instituted against David Ragan for
fraudulent and fictitious trade transactions in the form of
eighteen counts of mail and wire fraud. A jury found him guilty on
all eighteen counts. On July 16, 1993, while Ragan's conviction
was on appeal to this court, Judge Black granted summary judgment
in favor of Conti and against David Ragan because "David Ragan's
criminal conviction eliminates any genuine issue of material fact
regarding the issue of truth...."6
5
References in this subsection to "Ragan" refer to David
Ragan.
6
Judge Black's "Final Judgment", filed April 14, 1994,
referred to this July 16, 1993 order as the basis for final
5
Before transfer of this case to Texas, Judge Hart had
dismissed Ragan's tortious interference with employment claims "to
the extent claims are made based on any employment relationship
other than the one with Merrill Lynch", and had dismissed Ragan's
claims of tortious interference with customer and business
relations because Ragan presented "no nonhearsay testimony showing
that counterdefendants provided any false information to the
customers." In re ContiCommodity Services, Inc., Securities
Litigation, 733 F. Supp. at 1581. Judge Hart's reasoning was as
follows:
There is evidence from which it can be inferred that
counterdefendants intended to induce David Ragan's firing.
David Ragan has also presented evidence to support the claim
that the information provided by counterdefendants caused
David Ragan's dismissal from Merrill Lynch. David Ragan,
however, has not presented specific facts showing
counterdefendants caused the loss of any other employment.
In the "Final Judgment" at bar, Judge Black granted summary
judgment against Ragan on all remaining claims. The basis
expressed for this judgment was that (1) Ragan's criminal
conviction settled the question of the truth of Conti's allegedly
tortious and defamatory statements in Conti's favor; (2)
therefore, there is no longer a genuine issue of material fact
about the truth of these statements; and (3) therefore summary
judgment is proper. There being no statutory or jurisprudential
basis for the proposition that a criminal conviction satisfies the
truth inquiry in a civil proceeding for defamation or tortious
judgment against David Ragan. Ragan challenges as error the use
of his conviction as the basis for summary judgment against him.
6
interference by way of these statements, neither party argues on
appeal that Judge Black entered summary judgment against David
Ragan for the correct reasons.7
The district court's grant of summary judgment against David
Ragan, on the basis of his conviction which was on appeal at the
time of judgment, was improper. Nevertheless, summary judgment may
be affirmed on grounds other than the basis of the district court's
decision. See Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183,
193 (5th Cir.1990); see also, Matter of Lewisville Properties,
Inc., 849 F.2d 946, 950 (5th Cir.1988) and cases cited therein. We
shall therefore address de novo whether the judgment was proper
despite its improper basis.
Accusations or comments about an employee by his employer,
made to a person having an interest or duty in the matter to which
the communication relates, have a qualified privilege. Schauer v.
Memorial Care Systems, 856 S.W.2d 437, 449 (Tex.App.—Houston [1st
Dist.] 1993) (citations omitted). This privilege protects such
communications in the absence of actual malice.
In the defamation context, actual malice does not include ill
will, spite or evil motive. Hagler v. Proctor & Gamble Mfg. Co.,
884 S.W.2d 771 (Tex.1994). "Actual malice" is a term of art which
is defined as "the making of a statement with knowledge that it is
7
The conviction was reversed on appeal to this court because
the record did not show a sufficient connection between David
Ragan and the charged offenses. United States v. Ragan, 24 F.3d
657, 660 (5th Cir.1994).
7
[8]
false, or with reckless disregard of whether it is true." See
Duffy, 44 F.3d at 313, quoting Carr v. Brasher, 776 S.W.2d 567, 571
(Tex.1989). A finding of such malice requires "sufficient evidence
to permit the conclusion that the defendant in fact entertained
serious doubts as to the truth of his publication." Hagler,
quoting Casso v. Brand, 776 S.W.2d 551, 558 (Tex.1989); Duffy, Id.
Where the employee claims that the employer made such references
and accusations about him to one with a common interest (such as
the employee's new employer), and the employer has pled the
affirmative defense of qualified privilege, Texas law places on the
plaintiff the burden of proof at trial with respect to malice.
Duffy, 44 F.3d at 313-14, citing Dun & Bradstreet, Inc. v. O'Neil,
456 S.W.2d 896, 898 (Tex.1970). Thus, in the instant case, it
matters not whether such statements were true or whether the
statements were made to Merrill Lynch and the Chicago Board of
Trade: if there is no clear evidence of "actual malice", then
summary judgment was proper on these claims. See and compare,
Duffy v. Leading Edge Products, Inc., 44 F.3d at 313-316.
The plaintiff employee must show that the defendant employer
acted with malice in order to overcome the affirmative defense of
qualified privilege. In its answer to Ragan's counterclaim, Conti
pled the defense of qualified privilege. The strongest evidence of
8
"Reckless disregard" is defined as a high degree of
awareness of probable falsity which the plaintiff shows by
presenting "sufficient evidence to permit the conclusion that the
defendant in fact entertained serious doubts as to the truth of
his publication." See Duffy, 44 F.3d at 313, quoting Carr v.
Brasher, 776 S.W.2d 567, 571 (Tex.1989).
8
malice is that Conti made these statements prior to having any
concrete or objective indication of any wrongdoing on Ragan's part.
Ragan argues that Conti's admission that it had nothing to support
the allegedly defamatory statements until after it made the
statements means that Conti had actual malice. Conti argues that
the information which was later found by outside auditors confirmed
the suspicions which it had communicated in the challenged
statements. Neither of these arguments is more probable than the
other and, without weighing the evidence, we find that Ragan has
not made a showing that is sufficient to constitute the "clear
evidence" of malice required to defeat a properly supported motion
for summary judgment. Thus, in the absence of such a showing,
Conti was entitled to summary judgment against Ragan even if the
statements at issue were false.
Ragan also argues that Judge Black erred in dismissing all of
his claims because he did not appeal Judge Hart's decision to deny
Conti's summary judgment motion as to the Merrill Lynch portion of
his tortious interference claims or as to his defamation claims.
Our review of Judge Black's grant of summary judgment is de novo.
Judge Black did not articulate any basis for summary judgment other
than Ragan's criminal conviction, and thus did not address Judge
Hart's prior decision. The record before us shows that, as a
matter of law, there is no genuine issue of material fact regarding
Conti's qualified privilege defense. For this reason, we affirm
the entry of summary judgment and do not address these arguments.
Ragan also argues that the loss of his trading license in
9
conjunction with Conti's alleged wrongful conduct effectively ended
his career in securities and commodities. He challenges Judge
Hart's disposition of that claim as well as his claim of tortious
interference with his non-Merrill Lynch employment and customer
relationships. He asserts that he has shown a reasonable
likelihood that, if he had not lost his trading license due to
Conti's accusations, he would enter into "business relations" with
prospective clients or employers and that, therefore, Judge Hart's
dismissal of his claim of interference with business relationships
should be reversed. We disagree. As we state in In re Burzynski,
989 F.2d 733, 739 (5th Cir.1993),
The requisite elements [for an action for tortious
interference with prospective business relations] are: 1) a
reasonable probability that the plaintiff would have gotten a
contract, 2) malicious and intentional action by the defendant
which aborted the prospective business relationship, and 3)
actual harm to the plaintiff.
Conti has carried its initial burden to show the absence of
evidence that it acted with malice. Thus, absent a showing by
Ragan that Conti acted in a malicious and intentional manner, there
is no genuine issue of material fact on this element of Ragan's
claims of tortious interference. We have already determined that
Ragan has failed to show malice as the term of art is used in the
context of alleged defamatory statements made by an employer and
thus has failed to make a showing sufficient to establish an
element which is both essential to his case and on which he would
bear the burden of proof at trial. Here, the malicious and
intentional actions alleged by Ragan are the alleged damaging
statements made by his employer. For this reason, we also conclude
10
that Ragan has not shown a genuine issue of fact as to the
"malicious and intentional action" element in his tortious
interference claims. Moreover, the record discloses potentially
damaging statements made by Conti, but Ragan does not identify
evidence that the statements were made to one who does not have a
common interest.9 Therefore, Ragan must show malice in order to
overcome Conti's qualified privilege defense.
There being no genuine issue of material fact as to a critical
element of David Ragan's claim of tortious interference,
defamation, slander, & libel, summary judgment against him was
proper.
David Ragan also challenges Judge Hart's entry of summary
judgment against him on his claims of breach of contract. Conti
correctly points out that the arguments Ragan asserts on appeal
were not presented in the response to Conti's summary judgment
motion that was before Judge Hart. For this reason, we will not
revisit Judge Hart's decision on this issue.
B. Summary Judgment Against Joe Ragan10
Joe Ragan challenges Judge Black's dismissal of his claims for
damages allegedly sustained by Conti's orders to close out the
positions in his account. By the time that Judge Black granted
final summary judgment against Ragan, the only question remaining
9
Both Merrill Lynch and the Chicago Board of Trade had an
interest similar to that of Conti's interest as Ragan's employer.
See and compare, Duffy and Dun & Bradstreet, Inc.
10
References in this subsection to "Ragan" refer to Joe
Ragan. Joe Ragan did not challenge the summary judgment entered
by Judge Hart.
11
was whether there was a positive balance in Ragan's account at the
time it was closed. Ragan had provided no indication that
particular trades were challenged. See In re ContiCommodity
Services, Inc., Securities Litigation, 733 F.2d at 1569-70.
Accordingly, Judge Hart had determined that, unlike the conversion
claim of other Conti customers which were based upon improper
trades, Joe Ragan's conversion claim was that Conti converted the
balances in his account and not that Conti improperly closed out
their positions. In re ContiCommodity Services, Inc., Securities
Litigation, Id.
Ragan now contends that his claim is one for damages due to
loss of the value (at maturity) of the securities in his account
and is not a claim for conversion. Ragan asks this court to accept
as accurate for purposes of damages calculation the value that the
securities would have at maturity, rather than the market value of
the securities at or near the time they were sold by Conti.11 He
contends that it is Conti's seizure of the securities that gave
rise to his damage claim, without regard to what Conti did with
them after it took them from his account; on this basis, Ragan
argues that his claim is not one of conversion. This argument is
not persuasive.
11
Ragan presented some evidence that his position in these
securities finally would have become "positive" some four months
after the allegedly improper acts of Conti. However, he cites
and we have found no statutory or jurisprudential basis for a
finding that, as a matter of law, four months is a "reasonable"
time to form the basis for calculating his requested "but for
Conti's liquidation" damages in the type of trading that was done
in his account.
12
A review of Ragan's counter-claim and the arguments in support
thereof which were made before Judge Hart show that Judge Hart's
"conversion" characterization was accurate. The record shows no
indication that Ragan tried to reinvest in the market or challenged
the actions of Conti in closing out his account. Ragan argues that
because Conti stopped financing his trades, Conti prevented him
from reentering the market—yet he does not point to any summary
judgment evidence that he demanded either reinstatement of his
positions or some other action to remedy the situation. A failure
to either reinvest or demand reinstatement of one's trading
position amounts to a decision to get out of the market and not
risk a further loss. See and compare, Chipser v. Kohlmeyer & Co.,
600 F.2d 1061, 1067-68 (5th Cir.1979). We find no statutory or
jurisprudential basis to support Ragan's insistence that the value
of Ragan's account is the face value of the securities in the
account. Moreover, Ragan has not shown that he is entitled to
relief based on this method or other methods of valuation. We
affirm the district court judgment as to Joe Ragan.
CONCLUSION
As discussed above, appellants have not shown that there
exists a genuine issue of material fact in this case. Accordingly,
we AFFIRM Judge Black's judgment which dismissed the remaining
claims of David Ragan and Joe Ragan against ContiCommodity
Services, Inc. and Continental Grain Company.
13