St Paul Mercury Ins v. Williamson ( 2000 )

REVISED - September 5, 2000
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 97-31143
ST. PAUL MERCURY INSURANCE CO.,
Plaintiff-Counter Defendants-Appellee,
VERSUS
ROBERT T. WILLIAMSON; SONYA WILLIAMSON; ARLONE BELAIRE,
Defendants-Counter Claimant-Appellants,
VERSUS
RICHARD VALE; HAYNES BEST WESTERN OF ALEXANDRIA, INC.; H. L.
HAYNES; MRS. H. L. HAYNES; BEST WESTERN INTERNATIONAL, INC.;
AMERICAN GENERAL FIRE AND CASUALTY CO.; MARYLAND CASUALTY CO.,
Counter Defendants-Appellees.
--------------------------------------------------
ROBERT T. WILLIAMSON; SONYA WILLIAMSON; ARLONE BELAIRE,
Plaintiffs-Appellants,
VERSUS
RICHARD VALE; ET AL.,
Defendants,
RICHARD VALE; HAYNES BEST WESTERN OF ALEXANDRIA; BEST WESTERN
INTERNATIONAL, INC.; H. L. HAYNES; H. L. HAYNES; AMERICAN GENERAL
FIRE AND CASUALTY; MARYLAND CASUALTY CO.; ST. PAUL MERCURY
INSURANCE COMPANY; H.L. & H. HOLDING CO.;
Defendants-Appellees.
*****************************************************
No. 98-30001
ST. PAUL MERCURY INSURANCE COMPANY,
Plaintiff-Appellant,
VERSUS
ROBERT T. WILLIAMSON; ET AL.,
Defendants,
ROBERT T. WILLIAMSON; ARLONE BELAIRE; SONYA J. WILLIAMSON,
Defendants-Appellees.
--------------------------------------------------
ROBERT T. WILLIAMSON; SONYA WILLIAMSON; ARLONE BELAIRE,
Plaintiffs-Appellees,
VERSUS
RICHARD VALE; ET AL.,
Defendants,
ST. PAUL MERCURY INSURANCE COMPANY
2
Defendant-Appellant.
*************************************************
No. 98-31243
ST. PAUL MERCURY INSURANCE CO.; HAYNES BEST WESTERN OF
ALEXANDRIA, INC.; BEST WESTERN INTERNATIONAL, INC.; H. L.
HAYNES; H. L. HAYNES, Mrs.; H & L HOLDING CO.; AMERICAN
GENERAL INSURANCE CO.; RICHARD S. VALE; MARYLAND CASUALTY CO.,
Plaintiffs-Appellees,
VERSUS
SONYA WILLIAMSON, Individually and on behalf of her minor
children, ROBERT T. WILLIAMSON, Individually and on behalf
of his minor children; LAWRENCE J. SMITH,
Defendants-Appellants.
Appeals from the United States District Court
for the Western District of Louisiana
August 17, 2000
Before JONES, DeMOSS and DENNIS, Circuit Judges.
DeMOSS, Circuit Judge:
In these three consolidated appeals, we confront a convoluted
set of facts and issues arising from the unfortunate litigiousness
of the parties involved. Despite hopes that the cycle of
litigation would end here today, we must conclude that the district
court erred in various aspects of its rulings and that resolution
3
of these cases must await another time.
I. BACKGROUND
In March of 1990, Sonya Williamson (“Sonya”) individually and
Robert Williamson (“Robert”), on behalf of their children, filed
suit in state court against various individuals and entities
including St. Paul Mercury Insurance Company (“St. Paul”)
(collectively the “insurance parties”) for injuries suffered by
Sonya at the Haynes Best Western of Alexandria. On September 26,
1994, the jury in this state case returned two findings: (1) Sonya
had sustained injuries at the motel on July 21, 1989; and (2) the
insurance parties had proved by a preponderance of the evidence
that the incident of July 21, 1989, was a result of a staged
accident or fraud. Judgment was entered in favor of the insurance
parties. On January 29, 1997, the Louisiana Fourth Circuit Court
of Appeal affirmed the jury’s verdict. See Williamson v. Haynes
Best Western, 688 So. 2d 1201 (La. Ct. App. 1997). The Louisiana
Supreme Court denied the Williamsons’ applications for writs on
June 20, 1997. See Williamson v. Haynes Best Western, 695 So. 2d
1355 (La. 1997).
On November 4, 1993, during the pendency of the state trial,
St. Paul filed suit in federal court against Robert, Arlone
Belaire,1 and Seahorse Farms (collectively with Sonya and with or
1
Arlone Belaire is Robert Williamson’s mother.
4
without Seahorse Farms as the “Williamsons”), alleging violations
of the Racketeer Influenced and Corrupt Organizations Act (“RICO”),
18 U.S.C. §§ 1961-68, and state law claims for fraud and
conspiracy. St. Paul later amended the complaint on December 12,
1994, to include Sonya as a defendant. The complaint essentially
alleged that the Williamsons have a lengthy history of making
fraudulent insurance claims and that they staged the electrocution
that supposedly injured Sonya at the motel.
On September 25, 1996, the Williamsons counterclaimed and
simultaneously initiated an action in the same federal district
court, which was ultimately consolidated with St. Paul’s suit.
They asserted various RICO and state law claims against the
insurance parties. In general, their counterclaims alleged that
the fraud defense asserted by the insurance parties in Sonya’s
state court personal injury trial, and which ultimately formed the
basis for recovery in St. Paul’s federal suit, was itself
fraudulent.
On October 22, 1997, the district court granted summary
judgment in favor of St. Paul and the other counter-defendants on
the Williamsons’ counterclaims. See St. Paul Mercury Ins. Co. v.
Williamson, 986 F. Supp. 409 (W.D. La. 1997). It further dismissed
St. Paul’s RICO claims against the Williamsons on October 30, 1997.
Subsequent to the district court’s dismissal of St. Paul’s
RICO claims, St. Paul orally dismissed Robert, Arlone, and Seahorse
5
Farms from the lawsuit at the final pretrial conference, held on
October 31, 1997. With those dismissals, the only remaining
matters were St. Paul’s state law claims for fraud and conspiracy
against Sonya. At the pretrial conference, the district court
appeared to conclude that the state court jury finding of fraud was
res judicata as to St. Paul’s state law fraud claim.2 It induced
Sonya’s counsel to admit that with the dismissal of the other
Williamson litigants, there existed the requirements for res
judicata under Louisiana law.
Sonya’s counsel, however, contended that the fraud and
conspiracy claims had prescribed. He was given the opportunity to
file a motion for summary judgment on that issue, which he did on
November 5, 1997. St. Paul responded to that motion on November 7,
1997, six days prior to trial. That response for the first time
specifically mentioned a malicious prosecution claim. Sonya filed
a reply to the response on the same day.
On November 11, 1997, the district court denied Sonya’s motion
for summary judgment based on prescription. But instead of
addressing whether the fraud and conspiracy claims had prescribed,
the district court’s order focused on whether St. Paul’s complaint
provided Sonya with notice of the operative facts underlying a
malicious prosecution claim. While acknowledging that St. Paul did
not expressly allege the legal theory of malicious prosecution, the
2
But the district court reserved the right to make a final
written ruling, which was never issued.
6
district court found that St. Paul’s complaint gave adequate notice
of that claim for purposes of Rule 8 of the Federal Rules of Civil
Procedure.
Thereafter, on November 13, 1997, the district court ruled
that the trial would proceed solely on the issue of damages. Sonya
objected and asked for a continuance, which was denied. The jury
returned a damages award against Sonya in the amount of
$411,166.56.
While the federal suit was proceeding before the district
court, Sonya and her children, through their father Robert, filed
a petition in state court in November 1995, to nullify the prior
state court judgment finding that Sonya’s injuries were the result
of a staged accident or fraud pursuant to Louisiana Code of Civil
Procedure article 2004.3 The petition alleged ill practices by the
insurance parties in concealing the defects on the motel’s premises
and in presenting false testimony from motel employees regarding
the condition and alteration of the electrical fixtures. The
nullification case sat dormant during the pendency of the federal
suit initiated by St. Paul. But in March of 1998, Sonya and the
children filed a third supplemental and amending petition in state
court, reviving the nullification suit.
3
Article 2004 states that “[a] final judgment obtained by
fraud or ill practices may be annulled.”
7
On September 9, 1998, St. Paul and the other insurance parties
filed a complaint in federal court to enjoin the nullification
action. They argued that Sonya and the children’s nullification
petition was an attempt to relitigate the prior federal court
judgment dismissing the Williamsons’ counterclaims. Among the
counterclaims had been allegations concerning the condition of the
electrical fixtures and the insurance parties’ representations of
the motel’s premises. A hearing was held on the injunction on
October 5, 1998. On October 16, 1998, the district court
preliminarily enjoined Sonya, Robert, their children, and their
attorney Lawrence J. Smith, from pursuing the nullification action
in state court, pending the resolution of the appeal of the federal
case.
II. DISCUSSION
In these consolidated appeals, the various parties raise an
assortment of issues. In appeal No. 97-31143, the Williamson
litigants challenge the district court’s apparent directed
verdict/summary judgment order concluding that the state court jury
finding of fraud was res judicata as to the liability portion of
St. Paul’s malicious prosecution claim, its decision to strike all
of Sonya’s defenses to that malicious prosecution claim, the
sufficiency of the evidence to support the jury’s damages verdict,
certain evidentiary rulings by the district court, and its summary
8
judgment order dismissing their counterclaims. In appeal No. 98-
30001, St. Paul contests the district court’s summary judgment
order dismissing its RICO claims against the Williamsons. And in
appeal No. 98-31243, Sonya, Robert, their children, and their
attorney Smith assert that the district court erred in enjoining
the nullification suit pending in Louisiana state court. We review
each of these appeals in turn.
A. Appeal No. 97-31143
In this appeal, one of Sonya’s major contentions is that the
district court improperly determined that the state court jury’s
finding of a staged accident or fraud was res judicata as to the
liability portion of St. Paul’s malicious prosecution claim. She
offers both a procedural and a substantive reason for reversing the
district court’s ruling. Procedurally, she notes that the district
court allowed St. Paul to proceed on the malicious prosecution
theory despite that claim not having been explicitly stated in St.
Paul’s complaint. Moreover, it appeared to grant summary judgment
sua sponte on the issue of liability without affording her a chance
to respond. Substantively, Sonya maintains that the district
court’s grant of summary judgment misapplied Louisiana res judicata
law.
9
St. Paul never specifically mentioned a malicious prosecution
claim; that is, its complaint4 did not include the magic words
“malicious prosecution.” Furthermore, St. Paul never moved to
amend its complaint to include a malicious prosecution claim.
Indeed, the first time St. Paul expressly asserted this claim was
in its response to Sonya’s motion for summary judgment.
The notice pleading requirements of Federal Rule of Civil
Procedure 8 and case law do not require an inordinate amount of
detail or precision. Rule 8 provides that “[a] pleading . . .
shall contain . . . a short and plain statement of the claim
showing that the pleader is entitled to relief . . . .” The
function of a complaint is to give the defendant fair notice of the
plaintiff’s claim and the grounds upon which the plaintiff relies.
See Doss v. South Cent. Bell Tel. Co., 834 F.2d 421, 424 (5th Cir.
1987) (citing Conley v. Gibson, 78 S. Ct. 99, 103 (1957)). The
“form of the complaint is not significant if it alleges facts upon
which relief can be granted, even if it fails to categorize
correctly the legal theory giving rise to the claim.” Dussouy v.
Gulf Coast Inv. Corp., 660 F.2d 594, 604 (5th Cir. 1981); see also
Doss, 834 F.2d at 424.
4
St. Paul actually filed more than one complaint in this case,
but none of them specifically mentioned the malicious prosecution
claim. For simplicity’s sake, we use the singular.
10
Here, St. Paul’s complaint focused on RICO violations
purportedly committed by Sonya and the other Williamson litigants,
but in describing those violations, it generally alleged that Sonya
defrauded St. Paul by pursuing a fraudulent lawsuit in state court
for which St. Paul sought damages to compensate for the attorneys’
fees expended in that suit. Although those allegations did not
specifically include the words “malicious prosecution,” such a
claim could conceivably come within those allegations, and those
allegations state facts upon which relief can be granted.
Sonya’s second procedural issue is of greater concern. St.
Paul did not move for summary judgment based on res judicata as to
the malicious prosecution claim, let alone on the fraud and
conspiracy claims, which were the original claims that appeared to
have been barred by res judicata at the October 31 pretrial
conference. Hence, the district court must have sua sponte granted
summary judgment on the liability portion of the malicious
prosecution claim.
The district court may enter summary judgment sua sponte if
the parties are provided with reasonable notice and an opportunity
to present argument opposing the judgment. See Ross v. University
of Texas, 139 F.3d 521, 527 (5th Cir. 1998). A party must be given
at least ten days notice before a court grants summary judgment sua
sponte. See id. (quoting Miller v. Houghton, 115 F.3d 348, 350
(5th Cir. 1997)). But failure to give notice may be harmless when
11
the “‘nonmovant has no additional evidence or if all of the
nonmovant’s additional evidence is reviewed by the appellate court
and none of the evidence presents a genuine issue of material
fact.’” Id. (quoting Nowlin v. Resolution Trust Corp., 33 F.3d
498, 504 (5th Cir. 1994)).
The record is unclear as to whether the district court gave
notice to Sonya that it was considering an award of summary
judgment on the malicious prosecution claim. We can either view
the district court’s statements at the October 31 pretrial
conference as having provided notice, with the subsequent November
13 hearing reflecting the actual summary judgment ruling, or we can
view the November 13 hearing as having been the first time that
Sonya was notified about the possibility of summary judgment. In
the former case, there would have been sufficient notice, while in
the latter there would not have been. Part of the uncertainty
stems from the district court’s perception of the fraud and
malicious prosecution claims as being virtually synonymous when it
considered whether St. Paul’s complaint alleged a malicious
prosecution claim. Because the district court viewed the two
claims similarly, it naturally assumed that its oral res judicata
ruling as to the fraud claim at the October 31 pretrial conference
was controlling. But the fact that St. Paul’s complaint may have
averred a malicious prosecution claim, in addition to the fraud
claim, does not make the two claims the same. Hence, we conclude
12
that the November 13 hearing was the first notice to Sonya that the
district court was considering summary judgment as to the liability
portion of the malicious prosecution claim.
Notwithstanding this, summary judgment may still have been
proper if the district court’s procedural error was harmless. We,
however, believe that that was not the case. Under Louisiana law,
a malicious prosecution claim requires: 1) the commencement of an
original criminal or civil judicial proceeding; 2) its legal
causation by the present defendant against the present plaintiff
who was the defendant in the original proceeding; 3) its bona fide
termination in favor of the present plaintiff; 4) the absence of
probable cause for such proceeding; 5) the presence of malice
therein; and 6) damages conforming to legal standards resulting to
the plaintiff. See Hibernia Nat’l Bank v. Bolleter, 390 So. 2d
842, 843 (La. 1980). Sonya’s state court suit and the resulting
jury verdict essentially established the first three elements. To
determine if there was an absence of probable cause, we must
examine whether Sonya had an honest and reasonable belief in the
liability of St. Paul at the time that she filed her lawsuit. See
Jones v. Soileau, 448 So. 2d 1268, 1272 (La. 1984). The mere fact
that the state court jury found that the accident was staged or
fraudulent did not conclusively establish that Sonya lacked
probable cause to bring suit. Cf. id. (holding that a conviction
or its reversal is not conclusive as to whether a defendant who
13
pressed criminal charges against the plaintiff had probable cause
to bring forth the criminal complaint). Here, Sonya requested a
continuance so that she could present the testimony of the
attorneys who worked on her state court suit as to whether she had
probable cause to pursue the lawsuit. Thus, Sonya had evidence
that she wished to proffer to the court and that could have created
a genuine issue of material fact as to the probable cause element.
Therefore, we conclude that the district court should not have
granted summary judgment sua sponte, and that irrespective of
whether the district court complied with the notice requirements
for summary judgment or committed harmless error, summary judgment
based on res judicata was substantively improper.
The rules of res judicata encompass two separate but linked
preclusive doctrines: (1) true res judicata or claim preclusion and
(2) collateral estoppel or issue preclusion. See Kaspar Wire
Works, Inc. v. Leco Eng’g & Mach., Inc., 575 F.2d 530, 535 (5th
Cir. 1978). The former is typically what we call “res judicata,”
and it treats a judgment, once rendered, as the full measure of
relief to be accorded between the same parties on the same “claim”
or “cause of action.” See id. Res judicata incorporates the
doctrines of merger and bar, thereby extending the effect of a
judgment to the litigation of all issues relevant to the same claim
between the same parties, whether or not those issues were raised
at trial. Collateral estoppel precludes the relitigation of issues
14
actually adjudicated, and essential to the judgment, in a prior
suit between the parties on a different cause of action. See id.
The Supreme Court has stated that “[t]he preclusive effect of
a state court judgment in a subsequent federal lawsuit generally is
determined by the full faith and credit statute, which provides
that state judicial proceedings ‘shall have the same full faith and
credit in every court within the United State . . . as they have by
law or usage in the courts of such State . . . from which they are
taken.’” Marrese v. American Academy of Orthopaedic Surgeons, 105
S. Ct. 1327, 1331-32 (1985) (quoting 28 U.S.C. § 1738). Under this
statute, a federal court must refer to the preclusion law of the
state in which judgment was rendered. See id. at 1332.
Here, the district court had to give the same preclusive
effect to the Louisiana state court judgment as would a Louisiana
court. But, because of its civilian heritage, Louisiana’s
preclusion law is quite different from that of its common law
cousins. For example, Louisiana explicitly rejected collateral
estoppel as a preclusive device until certain statutory revisions
came into effect on January 1, 1991. See B.E. Welch v. Crown
Zellerbach Corp., 359 So. 2d 154, 156-57 (La. 1978); La. Rev. Stat.
13:4231. Consequently, the preclusive effect of judgments arising
from suits filed before that date, such as the present matter, is
determined by the law in effect prior to 1991. See La. Rev. Stat.
13:4231.
15
While Louisiana did not have collateral estoppel until 1991,
it did codify a law of res judicata at former Louisiana Civil Code
article 2286.5 That provision provided:
The authority of the thing adjudged takes place
only with respect to what was the object of the
judgment. The thing demanded must be the same; the
demand must be founded on the same cause of action;
the demand must be between the same parties; and
formed by them against each other in the same
quality.
La. Civ. Code art. 2286. Thus, for res judicata to have applied in
the instant matter, there must have been: 1) an identity of the
parties; 2) an identity of the thing demanded; and 3) an identity
of the cause of action. See Terrebonne v. Theriot, 657 So. 2d
1358, 1361 (La. Ct. App. 1995).
When determining if res judicata applies, Louisiana courts
have narrowly construed the doctrine’s scope. See B. E. Welch, 359
So. 2d at 156. Any doubt as to compliance with the requirements of
res judicata is to be resolved in favor of maintaining the second
action. See Greer v. Louisiana, 616 So. 2d 811, 815 (La. Ct. App.
1993). And the party urging res judicata has the burden of proving
each essential element by a preponderance of the evidence. See id.
Under Louisiana law, identity of the parties does not mean
that the parties must be the same physical or material parties, but
they must appear in the suit in the same quality or capacity. See
5
Article 2286 was redesignated as La. Rev. Stat. 13:4231
without change in substance by 1984 La. Acts 331, § 7, effective
January 1, 1985.
16
id. Here, that requirement was satisfied as Sonya and St. Paul
opposed each other in both the state and federal suits in the same
quality or capacity. On the other hand, we encounter difficulties
in establishing the second and third requirements.
The thing demanded has routinely been defined as the kind of
relief sought. See Cantrelle Fence & Supply Co. v. Allstate Ins.
Co., 515 So. 2d 1074, 1078 (La. 1987). In reality, that
requirement is more complicated as it encompasses the fundamental
nature of the right claimed. “[T]he thing demanded in any action
is the recognition of the parties’ rights vis-à-vis the thing in
controversy.” David L. Hoskins, Comment, Litigation Preclusion in
Louisiana: Welch v. Crown Zellerbach Corporation and the Death of
Collateral Estoppel, 53 Tul. L. Rev. 875, 880 n.41 (1979); see also
Dennis K. Dolbear, Note, The End of Collateral Estoppel in
Louisiana: Welch v. Crown Zellerbach Corporation, 40 La. L. Rev.
246, 249 (1979) (“[I]t is the type of relief demanded, but viewed
in terms of the basis for the right of indemnification.”). In the
state court suit, St. Paul sought a defense verdict so that it
would not have to pay any damages to Sonya for her injuries. The
thing in controversy was whether Sonya had suffered any injuries
from the electrical accident and whether that accident had been
fraudulent or staged. In the federal case, what St. Paul wanted
was damages for the attorneys’ fees expended in fighting a
maliciously prosecuted state suit. Although the issue of fraud
17
played an important role in the federal suit, the relief sought in
that suit vis-à-vis the malicious prosecution claim was palpably
different from the relief requested in the state suit.
As for the third requirement of identity of cause of action,
Louisiana courts have concluded that the phrase is a mistranslation
of the French and that it really refers to the civil concept of
cause. See Greer, 616 So. 2d at 815. Cause is the juridical or
material fact which is the basis for the right claimed or the
defense pleaded. See Mitchell v. Bertolla, 340 So. 2d 287, 291
(La. 1976). It may be likened to grounds, theory of recovery, or
the principle upon which a specific demand is grounded, and it is
a narrower concept than the common law’s cause of action. See
Cantrelle Fence, 515 So. 2d at 1078; Greer, 616 So. 2d at 815.
We can distinguish between cause and cause of action by
gauging their effects under res judicata. After final judgment, a
cause of action includes all grounds in support of it, and together
they merge into the judgment so that relitigation of the cause of
action on different grounds is barred. See Cantrelle Fence, 515
So. 2d at 1078. But because cause is roughly analogous to theory
of recovery, a second suit on a different ground is not precluded.
As a result, with minor exceptions, Louisiana’s law of res judicata
does not recognize the common law “might have been pleaded” rule.
See id.; Thomas E. Loehn, Comment, Res Judicata: Cause vs. Common
Law, 22 Loy. L. Rev. 221, 230 (1976) (“The Louisiana courts have
18
judicially declared in effect that res judicata will only apply to
those matters actually litigated and concluded and not to those
that might have been urged.”).
In the state suit, St. Paul defended against Sonya, contending
that the accident was fraudulent. The cause concerned the defense,
based on fraud, of a negligence suit initiated by Sonya. That suit
ultimately resulted in a jury finding that the accident was either
staged or a fraud. In the later federal suit, St. Paul asserted a
malicious prosecution claim, a theory of recovery that is wholly
different than a fraud defense. There, the cause involved whether
Sonya maliciously prosecuted her negligence suit against St. Paul.
As previously noted, a malicious prosecution claim requires: (1)
the commencement of an original criminal or civil judicial
proceeding; (2) its legal causation by the present defendant
against the present plaintiff who was the defendant in the original
proceeding; (3) its bona fide termination in favor of the present
plaintiff; (4) the absence of probable cause for such proceeding;
(5) the presence of malice therein; and (6) damages conforming to
legal standards resulting to the plaintiff. See Hibernia Nat’l
Bank, 390 So. 2d at 843. On the other hand, “[f]raud is a
misrepresentation or a suppression of the truth made with the
intention either to obtain an unjust advantage for one party or to
cause a loss or inconvenience to the other.” Williamson, 688 So.
2d at 1239 (citing La. Civ. Code Ann. art. 1953). To prove fraud,
19
one must show: 1) an intent to defraud, and 2) actual or potential
loss or damages. See id. A comparison of those two theories of
recovery reveals that the specific elements for a malicious
prosecution claim do not coincide with those for fraud. Moreover,
a malicious prosecution claim could not have proceeded at the same
time that the state court trial on negligence and fraud was
occurring.
Despite those differences, the district court found that the
state court fraud finding established all the elements of the
malicious prosecution claim.6 The first three elements were
satisfied when the first trial terminated in favor of St. Paul.
The district court then held that the finding of fraud demonstrated
a lack of probable cause, citing to Jones v. Soileau, 448 So. 2d
1268 (La. 1984). Because there was a lack of probable cause, the
district court ruled that the presence of malice was established.
See Hibernia Nat’l Bank, 390 So. 2d at 844. Lastly, the district
court said damages are presumed when all the other elements of a
malicious prosecution claim are satisfied. See id.
We believe that the ruling was in error. First, as previously
noted, a fraud claim and a malicious prosecution claim are
6
The district court noted this in its Memorandum Order of
November 11, 1997, denying Sonya’s motion for summary judgment
seeking dismissal of St. Paul’s state law claims. In concluding
that St. Paul had stated a claim for malicious prosecution in its
pleadings, that order discussed in some detail how the state court
fraud finding mirrored a malicious prosecution claim.
20
dissimilar in their elements and do not involve the same cause in
the present case. The argument that a fraud finding establishes
all the elements of a malicious prosecution claim and, therefore,
is res judicata on that claim implies that the trial on the issue
of fraud encompassed the malicious prosecution claim. This defies
logic as a malicious prosecution claim could not have been tried
until the first trial was over. Thus, there is an inherent
contradiction to the notion that a fraud finding establishes all
the elements for malicious prosecution and is res judicata on that
claim. Second, what the district court did by treating the state
court fraud finding as res judicata on the malicious prosecution
claim was to use that finding in a manner akin to offensive
collateral estoppel, incorporating the prior adjudication into the
subsequent case to shorten the litigation. Res judicata, though,
is typically a defensive doctrine, and Louisiana did not have
collateral estoppel until 1991. Finally, the district court
misread and misapplied the holding of Jones to support its
proposition that a fraud finding establishes lack of probable cause
as a matter of law. That case does not state such a holding but
actually suggests that a fraud finding in a prior case is not
conclusive as to the lack of probable cause. Hence, a fraud
finding could not have conclusively established a malicious
prosecution claim, and the former should not have been used as res
21
judicata as to the latter claim.7 Accordingly, we vacate the
summary judgment and damages verdict in favor of St. Paul on its
malicious prosecution claim.
In light of our reversal and vacatur, we decline to address
Sonya’s arguments as to the striking of her defenses or as to
whether sufficient evidence supported the jury’s damages verdict.
As for the remaining issues on appeal in No. 97-31143, after having
reviewed the briefs and the record in this case, we find them
meritless. Thus, we believe that the district court did not
improperly grant summary judgment dismissing the Williamsons’
counterclaims or err in its evidentiary rulings, and those
determinations are affirmed.
B. Appeal No. 98-30001
The second of the three appeals concerns the district court’s
summary judgment order dismissing St. Paul’s RICO claims against
the Williamsons. RICO creates a civil cause of action for “‘[a]ny
person injured in his business or property by reason of a violation
of section 1962.’” Beck v. Prupis, 120 S. Ct. 1608, 1611 (2000)
(quoting 18 U.S.C. § 1964(c)). Here, St. Paul asserted violations
of § 1962(a), (c), and (d). We have reduced those subsections to
7
Furthermore, the state court jury found that the accident had
been staged or was fraudulent, not that Sonya had specifically
committed fraud. Without an examination of the state court record,
we cannot say that such a general finding of fraud could properly
be res judicata as to claims alleging individually specific charges
of fraud or malicious prosecution.
22
their simplest terms to mean that:
(a) a person who has received income from a pattern of
racketeering activity cannot invest that income in an
enterprise;
. . .
(c) a person who is employed by or associated with an
enterprise cannot conduct the affairs of the enterprise
through a pattern of racketeering activity; and
(d) a person cannot conspire to violate subsections (a),
(b), or (c).
See Crowe v. Henry, 43 F.3d 198, 203 (5th Cir. 1995). Under all
those subsections, to state a RICO claim, there must be: “(1) a
person who engages in (2) a pattern of racketeering activity (3)
connected to the acquisition, establishment, conduct, or control of
an enterprise.” Delta Truck & Tractor, Inc. v. J.I. Case Co., 855
F.2d 241, 242 (5th Cir. 1988). Assuming that the three elements of
a RICO person, a pattern of racketeering activity, and a RICO
enterprise are met, we may then continue to the substantive
requirements of each respective subsection.
Before proceeding to the three RICO elements and the
substantive requirements of the subsections, we initially address
St. Paul’s argument as to the appropriate standard of review.
Although the district court made its ruling after the Williamsons
moved for partial summary judgment, St. Paul argues that the
district court’s ruling was based solely on the pleadings and that,
therefore, the proper standard of review should be that for a
23
motion to dismiss as opposed to a motion for summary judgment.8 If
we were to review the appeal under a motion to dismiss standard,
St. Paul particularly believes that it asserted sufficient
allegations of injury caused by the Williamsons’ use of
racketeering income to maintain and operate a RICO enterprise in
violation of § 1962(a).
When a party moves for summary judgment, as the Williamsons
did in this case, “[i]t is not enough for the moving party to
merely make a conclusory statement that the other party has no
evidence to prove his case.” Ashe v. Corley, 992 F.2d 540, 543
(5th Cir. 1993). “‘[B]efore the non-moving party is required to
produce evidence in opposition to the motion, the moving party must
first satisfy its obligation of demonstrating that there are no
factual issues warranting trial.’” Id. (quoting Russ v.
International Paper Co., 943 F.2d 589, 592 (5th Cir. 1991)).
Indeed, where a motion for summary judgment is solely based on the
pleadings or only challenges the sufficiency of the plaintiff’s
pleadings, then such a motion should be evaluated in much the same
way as a Rule 12(b)(6) motion to dismiss. See id. at 544.
8
We review both a motion to dismiss and a motion for summary
judgment under a de novo standard of review. In the former, the
central issue is whether, in the light most favorable to the
plaintiff, the complaint states a valid claim for relief. See
Lowrey v. Texas A&M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997).
In the latter, we go beyond the pleadings to determine whether
there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law. See Fed. R.
Civ. P. 56(c).
24
Contrary to St. Paul’s assertions, the Williamsons did proffer
evidence in support of their motion for summary judgment. In
addition to pointing out the lack of evidence supporting St. Paul’s
RICO claims, they offered affidavits, depositions, and other
relevant documentary evidence suggesting that their prior insurance
claims, which St. Paul alleged were some of the bases for the
income that supposedly was invested into a RICO enterprise, were
not fraudulent and could not be predicate acts for the pattern of
racketeering needed for a RICO violation.
On the other hand, St. Paul contends that the Williamsons, as
movants, failed to comply with the holding in Ashe because they did
not offer evidence to show that there was an absence of proof as to
the factual issue of whether there was investment into a RICO
enterprise. Admittedly, the thrust of the submitted evidence
related to the pattern of racketeering issue, and not the specific
issue of investment in a RICO enterprise.
But the fact that the Williamsons raised the absence of a
pattern of racketeering issue in the summary judgment motion and
provided evidence to corroborate that argument necessarily supports
the Williamsons’ other argument that there was no evidence of
investment in a RICO enterprise. Thus, the Williamsons, in their
motion for summary judgment, did not rest on conclusionary
statements but demonstrated that no factual issues warranted trial.
In light of the Williamsons’ satisfaction of their burden to
25
demonstrate that no factual issues existed and the district court’s
conscious decision to go beyond the pleadings, we review the
current appeal under the de novo standard accorded to motions for
summary judgment.
With that standard in mind, we turn to the substance of the
district court’s summary judgment order and St. Paul’s appeal. Of
the three elements required of any RICO claim, the district court
noted that the Williamsons in their summary judgment motion had not
challenged whether St. Paul had asserted and/or provided evidence
of a RICO person or a RICO enterprise. A RICO person is the
defendant, while a RICO enterprise can be either a legal entity or
an association-in-fact. See Crowe v. Henry, 43 F.3d 198, 204 (5th
Cir. 1995). If the alleged enterprise is an association-in-fact,
the plaintiff must show evidence of an ongoing organization, formal
or informal, that functions as a continuing unit over time through
a hierarchical or consensual decision-making structure. See
Elliott v. Foufas, 867 F.2d 877, 881 (5th Cir. 1989). Here, St.
Paul had identified Robert, Sonya, and Arlone as defendants and had
pleaded, and apparently established, the RICO enterprise as
Seahorse Farms, and/or an association-in-fact of Robert, Sonya, and
Arlone, and/or an association-in-fact of Robert, Sonya, Arlone, and
Seahorse Farms.
The Williamsons, however, did circuitously challenge the third
element of a pattern of racketeering activity, contending that St.
26
Paul had failed to show evidence of fraudulent insurance claims.
A pattern of racketeering activity requires two or more predicate
acts and a demonstration that the racketeering predicates are
related and amount to or pose a threat of continued criminal
activity. See Word of Faith World Outreach Ctr. Church, Inc. v.
Sawyer, 90 F.3d 118, 122 (5th Cir. 1996). By arguing that there
were no fraudulent insurance claims, the Williamsons essentially
challenged St. Paul’s allegations of mail and wire fraud, the
predicate acts asserted by St. Paul as the basis for a pattern of
racketeering activity. Among other things, both RICO mail and wire
fraud require evidence of intent to defraud, i.e., evidence of a
scheme to defraud by false or fraudulent representations. See
Crowe v. Henry, 115 F.3d 294, 297 (5th Cir. 1997). After reviewing
the pleadings and the evidence, the district court determined that
there were genuine issues of material fact as to the existence of
a scheme to defraud and, as a result, as to the existence of those
predicate offenses.
Despite finding in favor of St. Paul on the three common
elements of a RICO claim, the district court found summary judgment
proper because St. Paul had failed to meet the substantive
requirements of § 1962(a), (c), and (d). We review each of those
subsections in turn.
1. Section 1962(a)
To establish a § 1962(a) violation, a plaintiff must prove 1)
27
the existence of an enterprise, 2) the defendant’s derivation of
income from a pattern of racketeering activity, and 3) the use of
any part of that income in acquiring an interest in or operating
the enterprise. Cf. United States v. Cauble, 706 F.2d 1322, 1331
(5th Cir. 1983) (reciting elements for a § 1962(a) criminal
violation). Moreover, there must be a nexus between the claimed
violation and the plaintiff’s injury. See Crowe v. Henry, 43 F.3d
198, 205 (5th Cir. 1995). In other words, for a viable § 1962(a)
claim, any injury must flow from the use or investment of
racketeering income. See Parker & Parsley Petroleum Co. v. Dresser
Indus., 972 F.2d 580, 584 (5th Cir. 1992).
Here, the district court dismissed St. Paul’s claim because
St. Paul failed to show that income from a pattern of racketeering
activity was invested in or used to operate a RICO enterprise. The
only predicate acts to form the basis of a pattern of racketeering
activity were several counts of mail and wire fraud, which St. Paul
explicitly stated in its complaint and RICO case statement.9 From
those specific predicate acts, the district court found that the
9
St. Paul contends that other predicate acts were stated in
the complaint and the RICO case statement and that evidence was
submitted, in the form of admissions, which revealed that income
from those acts were received by the Williamsons or Seahorse Farms.
Although both the complaint and the RICO case statement do refer
generally to some comments about insurance fraud claims by the
Williamsons, the complaint and the RICO case statement clearly
state and list the predicate acts of mail and wire fraud from which
the RICO claims emanate. All of them concern acts occurring
between March 29, 1989, and October 22, 1993.
28
only evidence of income was several checks from Insurance Company
of North America (“CIGNA”). The district court ruled that the
evidence did not establish that any of those checks were invested
in or used to operate a RICO enterprise. It stated that St. Paul’s
unsubstantiated allegation that income from the predicate acts
maintained the Williamsons during the prosecution of the state tort
suit was insufficient to prove investment into a RICO enterprise.
Although some evidence existed showing investment into the alleged
RICO enterprise of Seahorse Farms, that investment was derived from
income attributed to acts that were not alleged to have been
predicate acts forming a pattern of racketeering activity.
On appeal, St. Paul primarily presses the sufficiency of its
§ 1962(a) allegations, based on the motion to dismiss argument that
we previously noted as unavailing. The initial brief devotes very
little to the district court’s conclusion that there was no genuine
issue of material fact as to the investment of racketeering income,
in the form of the CIGNA checks, into a RICO enterprise. It merely
alludes to some evidence indicating that the Williamsons’ lacked
legitimate income, and therefore, any income derived from a pattern
of racketeering activity had to have been invested into the
Williamsons’ RICO enterprise, purportedly the association-in-fact
of Sonya, Robert, and Arlone, in the form of support and
maintenance so that the enterprise could pursue the state tort suit
against St. Paul. And other than general assertions that the
29
complaint adequately alleges the existence of income from a pattern
of racketeering activity, the initial brief does not present an
argument that there is evidence substantiating the existence of
income, other than the CIGNA checks, that was derived from the
predicate acts specifically listed in the complaint. Only in its
reply brief does St. Paul directly address the district court’s
conclusion that the evidence only supports the CIGNA checks as
having been generated from a pattern of racketeering activity. In
that reply brief, St. Paul notes circumstantial evidence of several
settlement checks from a disability insurer, Motors Insurance
Corporation (“MIC”), which may have been derived from the predicate
acts that were alleged in the complaint and that formed the basis
of a pattern of racketeering activity.
By the time the CIGNA checks were sent out starting in 1991,
Seahorse Farms had terminated as an entity. The only alleged RICO
enterprise that the checks could have been invested in was the
association-in-fact of Robert, Sonya, and Arlone. The district
court, however, determined that St. Paul had failed to prove
investment into a RICO enterprise, notwithstanding evidence
suggesting that all three members of the association-in-fact had
received the CIGNA checks. It was not persuaded by St. Paul’s
unsubstantiated allegation that the use of the CIGNA checks to
maintain Robert, Sonya, and Arlone during the prosecution of the
state tort suit was investment into an enterprise. That was error.
30
Although we recognize and, in a sense, sympathize with the district
court’s apparent belief that St. Paul should have provided evidence
beyond mere allegations that the CIGNA checks helped support the
members of an enterprise to demonstrate investment into a RICO
enterprise for purposes of a § 1962(a) violation, this Circuit’s
precedent dictates that a plaintiff “need prove only that illegally
derived funds flowed into the enterprise.” Cauble, 706 F.2d at
1342; cf. United States v. Vogt, 910 F.2d 1184, 1199 & n.7 (4th
Cir. 1990) (applying a broad definition of “use” and acknowledging
as sound the government’s contention that the depositing of funds
into an enterprise constituted a use to operate in violation of
§ 1962(a)); United States v. McNary, 620 F.2d 621, 628 (7th Cir.
1980) (finding that § 1962(a) does not require direct or immediate
use of illicit income). Assuming, as we must, that Robert, Sonya,
and Arlone comprised the enterprise and that they received the
CIGNA checks, we believe a genuine issue of material fact exists as
to whether racketeering proceeds were invested in or used to
operate a RICO enterprise.
Of course, to state a claim under § 1962(a), a plaintiff must
also show that its injuries resulted from the investment or use of
racketeering proceeds. See Parker & Parsley Petroleum, 972 F.2d at
584. Although the district court did not specifically consider
that nexus requirement to rule on the Williamsons’ motion for
summary judgment, they did raise it in their motion. Because we
31
can affirm a summary judgment on grounds not relied on by the
district court so long as those grounds were proposed or asserted
in that court by the movant, see Johnson v. Sawyer, 120 F.3d 1307,
1316 (5th Cir. 1997), we address that requirement. In its
complaint, St. Paul asserted that income from a pattern of
racketeering activity, arising from mail and wire fraud predicate
acts related to certain insurance claims, was invested in or used
to operate the Williamsons’ RICO enterprise and that the income was
then used to support the enterprise as the enterprise proceeded
with a lawsuit against St. Paul, thereby resulting in St. Paul’s
injuries. Among the predicate acts alleged to form a pattern of
racketeering activity were instances of conduct directly connected
to the filing of the state tort suit, including the filing of that
suit.
This is troubling, in light of St. Paul’s other claims under
§ 1962(c) that it was essentially injured by the defendants’
pattern of racketeering activity, i.e., the predicate acts.10 In
discussing the investment injury11 requirement of § 1962(a), this
Circuit, like virtually all the other circuits who have reviewed
this issue, has intimated that such an injury cannot just flow from
10
St. Paul also alleged that those predicate acts injured it
by violating state fraud law.
11
For simplicity’s sake, we use the term “investment injury”
to refer to an injury from the use or investment of racketeering
income in a RICO enterprise.
32
the predicate acts themselves. See Parker & Parsley Petroleum, 972
F.2d at 584; see also Vemco, Inc. v. Camardella, 23 F.3d 129, 132
(6th Cir. 1994); Nuggest Hydroelec. L.P. v. Pacific Gas & Elec.
Co., 981 F.2d 429, 437-38 (9th Cir. 1992); Danielsen v. Burnside-
Ott Aviation Training Ctr., Inc., 941 F.2d 1220, 1229-30 (D.C. Cir.
1991); Ouaknine v. MacFarlane, 897 F.2d 75, 82-83 (2d Cir. 1990);
Grider v. Texas Oil & Gas Corp., 868 F.2d 1147, 1150 (10th Cir.
1989). But see Busby v. Crown Supply, Inc., 896 F.2d 833, 836-40
(4th Cir. 1990). That is, injuries due to predicate acts cannot
form the basis of an investment injury for purposes of § 1962(a).
We must ask whether the injuries were a result of the predicate
acts or a result of the investment of racketeering proceeds into a
RICO enterprise. Otherwise, “it would be difficult to understand
why Congress enacted § 1962(a).” Danielsen, 941 F.2d at 1230. If
allegations sufficient to base a § 1962(c) action meet all the
requirements of a § 1962(a) allegation, then there is no real
rationale for Congress having passed both. See id. Here, St. Paul
has come close to improperly conflating § 1962(a) and (c), by
asserting that those acts related to the filing and prosecution of
the state tort suit were mail and wire fraud predicates and that
they caused it injuries.
In its response to the Williamsons’ motion for summary
judgment and in its initial brief, however, St. Paul argues in a
roundabout way that the investment injury it suffered was not from
33
the predicate acts related to the filing of the state tort suit,
but rather from the predicate acts associated with the Williamsons’
claims with other insurance companies.12 It maintains that its
injuries are cognizable because they were the result of the
Williamsons’ investment of racketeering income from a prior pattern
of racketeering activity. See Newmeyer v. Philatelic Leasing,
Ltd., 888 F.2d 385, 396 (6th Cir. 1989).
In Newmeyer, the plaintiffs had placed some money into an
investment plan dealing with stamps, which the defendants had
marketed. See id. at 386-91. The plaintiffs’ complaints alleged
that the defendants had been acting in concert over a period of
five years, defrauding hundreds of individuals, many of them prior
to the plaintiffs’ own deception. See id. at 396. In furtherance
of their scheme, the defendants allegedly committed mail and wire
fraud, which constituted a pattern of racketeering activity. See
id. Based on those allegations, the Sixth Circuit found that the
plaintiffs had made out a § 1962(a) claim. See id. It observed
that if the allegations were true and if the defendants had used
the income derived from earlier racketeering activity against other
victims to establish and operate the alleged scam into which the
plaintiffs placed their own money, then it was not impossible for
12
We find this argument odd because, as previously noted, the
district court did not discuss or base its summary judgment order
on the investment injury requirement.
34
the plaintiffs to demonstrate a § 1962(a) injury. See id.
The present situation closely parallels the Newmeyer case
except that we encounter uncertainty as to whether St. Paul has
alleged and established more than one pattern of racketeering
activity. St. Paul’s complaint grouped all the predicate acts
together, implying that they composed one pattern of racketeering.
In addition, of the predicate acts specifically listed in the
complaint, almost all of them related to the Williamsons’ actions
to obtain monetary compensation from insurance claims arising out
of Sonya’s July 1989 electrocution. Indeed, the CIGNA checks that
purportedly constitute the investment into the RICO enterprise were
received as a result of Sonya’s electrocution, the event that also
spurred the Williamsons’ predicate acts associated with the filing
of the state court suit. The commonality in the source of those
predicate acts suggests that the predicate acts that led to the
CIGNA checks and the predicate acts connected to the filing of the
lawsuit were related and formed one pattern of racketeering
activity. If we were to discern only one pattern of racketeering
35
activity, then this case would not fit easily within the Newmeyer
holding.13
Despite the problems, we believe that St. Paul has
sufficiently distinguished and established a genuine issue of
material fact as to the existence of a prior pattern of
racketeering activity, which may have produced income that was
invested into a RICO enterprise, causing injuries to St. Paul in
the form of legal costs. Although St. Paul may have confusingly
included those predicate acts that formed the prior pattern of
racketeering activity with those predicate acts that injured St.
Paul pursuant to § 1962(c), it is apparent from the complaint and
other documents that St. Paul was asserting that it was injured by
the investment of prior racketeering proceeds into the Williamsons’
RICO enterprise. And while the CIGNA checks and the predicate acts
related to the filing of the lawsuit all arose from Sonya’s
electrocution, that commonality does not mean that no § 1962(a)
claim can be asserted. The CIGNA checks were procured as a result
of Sonya’s electrocution, but they dealt with racketeering activity
connected to the Williamsons’ actions with other insurance
companies. The predicate acts associated with the filing of the
13
Part of the problem also rests with St. Paul’s failure to
allege properly as predicate acts a host of allegations about the
Williamsons’s insurance claims from the early 1980s to 1989, which
were purportedly a part of a prior pattern of racketeering
activity. See supra note 9. If St. Paul had established those
predicate acts, then the prior pattern of racketeering activity
would have been much more evident.
36
lawsuit, which formed the basis of the pattern of racketeering
activity under § 1962(c), concerned racketeering activity primarily
related to the Williamsons’ dealings with St. Paul. Thus, while
the predicate acts connected to the CIGNA checks and to the filing
of the lawsuit all sprang from the same root, those predicate acts
were the bases of different patterns of racketeering activity.
Hence, we find that St. Paul has asserted and created a genuine
issue of material fact as to the existence of an investment injury.
Accordingly, we vacate the district court’s summary judgment in
favor of the Williamsons’ as to the § 1962(a) claim with respect to
the CIGNA checks.
As for the income from the MIC settlement checks, which were
received by the Williamsons and which St. Paul raises in its reply
brief as evidence of other racketeering income having been invested
into a RICO enterprise, we affirm the district court. Generally,
we deem abandoned those issues not presented and argued in an
appellant’s initial brief, nor do we consider matters not presented
to the trial court. See Webb v. Investacorp Inc., 89 F.3d 252, 257
n.2 (5th Cir. 1996). In its initial brief, St. Paul tangentially
referred to the Williamsons’ receipt of disability checks in
general, but any reference to those checks were in the context of
its general allegations concerning the Williamsons’ fraudulent RICO
scheme. St. Paul did not challenge the district court’s ruling
that there was no genuine issue of material fact as to the lack of
37
racketeering income other than the CIGNA checks. Likewise, St.
Paul’s response to the Williamsons’ summary judgment motion was
deficient with respect to any argument that there was evidence
supporting the receipt of income, in the form of the MIC settlement
checks, from a pattern of racketeering activity.14 Accordingly, we
believe that St. Paul has abandoned any argument regarding the
existence of evidence pertaining to income derived from a pattern
of racketeering activity.
2. Section 1962(c)
As previously noted, § 1962(c) prohibits “any person employed
by or associated with any enterprise” from participating in or
conducting the affairs of that enterprise through a pattern of
racketeering activity. See 18 U.S.C. § 1962(c). Like the
overwhelming majority of our sister circuits, we have held that
subsection (c) requires that the RICO person be distinct from the
RICO enterprise. See Bishop v. Corbitt Marine Ways, Inc., 802 F.2d
122, 122-23 (5th Cir. 1986) (collecting cases); see also Crowe, 43
F.3d at 206 (“[A] RICO person cannot employ or associate with
himself under [§ 1962(c)]”.); In re Burzynski, 989 F.2d at 743
(citing Bishop). Here, St. Paul identified Robert, Sonya, and
Arlone as defendants, and thus as RICO persons. Moreover, it
14
St. Paul submitted evidence of those checks, but it did not
connect that evidence to any argument regarding the existence of
income, in the form of those checks, derived from a pattern of
racketeering activity.
38
alleged that the enterprise was essentially the association-in-fact
of Robert, Sonya, and Arlone.
The district court viewed those allegations as failing to
establish any distinction between the RICO defendants and the RICO
enterprise, and it dismissed St. Paul’s § 1962(c) claim. The two
primary bases for the district court’s determination were the
Burzynski and Crowe decisions from this Circuit. In Burzynski, the
plaintiff, a doctor who operated a research institute, sued Aetna
Life Insurance Company (“Aetna”), a litigation consultant hired by
Aetna, the company started by that litigation consultant, and
Aetna’s outside law firm for violating, among other things,
§ 1962(c). See In re Burzynski, 989 F.2d at 742. The plaintiff
charged that the enterprise was an association-in-fact comprised of
the defendants. See id. at 743. The Burzynski panel found that
this contravened the person/enterprise distinction as required by
§ 1962(c) and by Bishop. See id. In Crowe, the plaintiff, Larry
Crowe, sued his lawyer, Sam Henry, under the RICO statutes,
including § 1962(c). See Crowe, 43 F.3d at 201. The RICO
enterprise was allegedly an association-in-fact of Crowe and Henry.
See id. at 206. Citing Burzynski, a different panel of this Court
concluded that Crowe’s claim failed to demonstrate a sufficient
distinction between the person and the enterprise. See id.
39
St. Paul does not dispute the district court’s reading of the
Burzynski and Crowe holdings. It concedes that those decisions
seem to hold that members of an association-in-fact enterprise
cannot also be RICO persons for purposes of a § 1962(c) claim. But
St. Paul responds that recent case law casts doubt on the validity
of Burzynski’ s and Crowe’s interpretation of the person/enterprise
distinction and that those two cases actually conflict with earlier
Fifth Circuit case law. Referring to Khurana v. Innovative Health
Care Sys., Inc., 130 F.3d 143 (5th Cir. 1997), St. Paul argues that
there is a difference between the naming of a corporation as an
alleged member of an association-in-fact enterprise and the naming
of individuals as alleged members of an association-in-fact
enterprise when determining the person/enterprise distinction. In
addition, St. Paul asserts that Khurana comports with even earlier
circuit precedent, United States v. Elliott, 571 F.2d 880 (5th Cir.
1978), which perceived the person/enterprise distinction
differently than Burzynski and Crowe.
First off, we note that the Supreme Court vacated the judgment
in Khurana. See Teel v. Khurana, 119 S. Ct. 442 (1998). Second,
even if Khurana altered the landscape of the person/enterprise
distinction in our circuit, we are bound to the holdings in
Burzynski and Crowe, assuming that those are our earliest
pronouncements on this issue. See United States v. Texas Tech
Univ., 171 F.3d 279, 285 n.9 (5th Cir. 1999), cert. denied, 120 S.
40
Ct. 2194 (2000) (observing that when two prior panel decisions
conflict, the first decision controls); see also Luna v. United
States Dep’t of Health & Human Servs., 948 F.2d 169, 172 (5th Cir.
1991).
Nonetheless, reviewing Elliott and some of the other decisions
that led to the Burzynski and Crowe decisions, we believe that St.
Paul makes a meritorious argument. In Elliott, the government
prosecuted six individuals for RICO violations.15 See Elliott, 571
F.2d at 895. Those six individuals comprised the association-in-
fact enterprise. See id. at 898 n.18. Of the six, two were
charged as defendants for violating § 1962(c). See id. at 896.
Notwithstanding the fact that both individuals charged with
violating § 1962(c) were named as RICO persons and as members of
the association-in-fact, the Elliott panel affirmed their
convictions. See id. at 900.
Thus, when Bishop, the decision to which the Burzynski court
cited for support, held that to state a § 1962(c) claim, a
plaintiff had to distinguish between the RICO person and the RICO
15
Although Elliott involved a criminal prosecution as opposed
to a civil suit, the substantive requirements of § 1962(c) are the
same. Cf. Alcorn County v. U.S. Interstate Supplies, Inc., 731
F.2d 1160, 1170-71 (5th Cir. 1984), abrogated on other grounds,
United States v. Cooper, 135 F.3d 960 (5th Cir. 1998) (construing
criminal RICO cases as relevant for purposes of determining whether
a violation occurred); see also United States v. Shifman, 124 F.3d
31, 35 n.1 (1st Cir. 1997) (“[I]t is appropriate to rely on civil
RICO precedent when analyzing criminal RICO liability.”).
41
enterprise, it was not making the sweeping generalization that any
congruence between a RICO person and a member of an association-in-
fact, which constituted a RICO enterprise, violated the
person/enterprise distinction. Instead, Bishop merely concurred
with the vast majority of the circuits that held that a § 1962(c)
claim requires a distinction between the RICO person and the RICO
enterprise. Those circuits were discussing the person/enterprise
distinction where the plaintiffs were alleging a corporate entity
as both a RICO defendant and a RICO enterprise. Bishop itself
involved a plaintiff who sought a § 1962(c) claim against a single
corporate defendant, which was also named as the RICO enterprise.
See Bishop, 802 F.2d at 122.
The reason for differentiating in the § 1962(c) context
between cases where a corporation is identified as both the
enterprise and the defendant and cases where it is not was aptly
noted in the Harocco decision, to which Bishop heavily deferred.
See Harocco, Inc. v. American Nat’l Bank & Trust Co., 747 F.2d 384,
399 (7th Cir. 1984). The RICO statute distinguishes between a
corporation and an association-in-fact with respect to the “person”
element. See id. According to the Haroco court:
Where persons associate “in fact” for criminal
purposes, . . . each person may be held liable
under RICO for his, her or its participation in
conducting the affairs of the association in fact
through a pattern of racketeering activity. But
the nebulous association in fact does not itself
fall within the RICO definition of “person[]” . . .
42
. In the association in fact situation, each
participant in the enterprise may be a “person”
liable under RICO, but the association itself
cannot be. By contrast, a corporation obviously
qualifies as a “person” under RICO and may be
subject to RICO liability.
Id. at 401. Thus, courts have routinely required a distinction
when a corporation has been alleged as both a RICO defendant and a
RICO enterprise, but a similar requirement has not been mandated
when individuals have been named as defendants and as members of an
association-in-fact RICO enterprise.16
Indeed, “‘[a] collective entity is something more than the
members of which it is comprised.’” United States v. Fairchild,
189 F.3d 769, 777 (8th Cir. 1999) (quoting Atlas Pile Driving Co.
v. DiCon Fin. Co., 886 F.2d 986, 995 (8th Cir. 1989)). “Although
a defendant may not be both a person and an enterprise, a defendant
may be both a person and a part of an enterprise. In such a case,
16
To get around having a corporation named as both a RICO
defendant and a RICO enterprise, many plaintiffs have charged the
corporation as being part of an association-in-fact enterprise and
also as a RICO defendant. Courts have roundly criticized this
formulation. See, e.g., Brittingham v. Mobil Corp., 943 F.2d 297,
300-302 (3d Cir. 1991). In some ways, that formulation parallels
the situation where individuals are named as defendants and as
being part of an association-in-fact, and accordingly, the
criticism has fed the notion that no defendant can be a part of the
association-in-fact enterprise or it would violate the
person/enterprise distinction. But the criticism pertaining to
having corporations listed as being a part of the association-in-
fact is due to the fact that a Ҥ 1962(c) enterprise must be more
than an association of individuals or entities conducting the
normal affairs of a defendant corporation.” Id.; see also Old Time
Enters. v. International Coffee Corp., 862 F.2d 1213, 1215 (5th
Cir. 1989). The criticism is generally unwarranted where
corporations are not involved.
43
the individual defendant is distinct from the organizational
entity.” Id. Otherwise, an individual member of a collective
enterprise, such as an association-in-fact, could not be prosecuted
for violating § 1962(c) because he or she would not be considered
distinct from the enterprise. See id. Accordingly, we vacate the
district court’s award of summary judgment in favor of the
Williamsons’ on St. Paul’s § 1962(c) claim.
3. Section 1962(d)
Under § 1962(d), a person cannot conspire to violate
subsections (a) or (c). See 18 U.S.C. § 1962(d). With respect to
a conspiracy to violate subsection (c), this Circuit has previously
stated that just as a RICO person cannot employ or associate with
itself, it cannot conspire to employ or associate with itself. See
Ashe, 992 F.2d at 544. As a result, the district court dismissed
the § 1962(d) claim based on an agreement to violate subsection (c)
because it concluded that St. Paul had failed to distinguish the
RICO persons from the RICO enterprise. But in light of our holding
that St. Paul has established a distinction between the RICO
persons and the RICO enterprise, we vacate the district court’s
ruling with respect to St. Paul’s § 1962(d) claim charging a
conspiracy to violate subsection (c). Moreover, we remand the case
back to the district court so that it may address St. Paul’s §
1962(d) claim based on an agreement to violate subsection (a),
44
which the district court failed to do in its order.17
C. Appeal No. 98-31243
In the third and final consolidated appeal, we must determine
whether the district court erred in enjoining Sonya, Robert, their
children, and their agents from pursuing the state court
nullification suit. Under the Anti-Injunction Act, a federal court
may not grant an injunction to stay proceedings in a state court
“except as expressly authorized by an Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or effectuate
its judgments.” Next Level Communications LP v. DSC Communications
Corp., 179 F.3d 244, 249 (5th Cir. 1999). These exceptions are
narrowly construed. See id. The district court granted the
injunction based on the exception to protect or effectuate its
judgment, otherwise known as the relitigation exception. That
exception “``was designed to permit a federal court to prevent state
litigation of an issue that previously was presented to and decided
by the federal court.’” Id. (quoting Chick Kam Choo v. Exxon
Corp., 108 S. Ct. 1684 (1988)). Although generally the grant of a
preliminary injunction is reviewed for abuse of discretion, we
review the district court’s application of the relitigation
exception de novo. See Next Level, 179 F.3d at 249.
To apply the exception, the parties to the original action
17
As we previously noted, St. Paul has established a genuine
issue of material fact with respect to the § 1962(a) claim.
45
must have actually disputed the issue and the trier of fact must
have actually resolved it. See Santopadre v. Pelican Homestead &
Sav. Ass’n, 937 F.2d 268, 273 (5th Cir. 1991). In determining
which issues have been actually litigated, the federal court is
free to go beyond the judgment and may examine the pleadings and
the evidence in the prior action. See id. If a question of fact
is put in issue by the pleadings, is submitted to the jury or other
trier of facts for its determination, and is determined, then that
question of fact has been actually litigated. See id.
The state court nullification petition alleges that several
acts committed by the insurance parties during the course of the
state court negligence trial constituted ill practices within the
meaning of article 2004. Among the acts were the nondisclosure of:
(1) the identity of George Casellas, the insurance parties’ non-
testifying expert; (2) Casellas’ photograph of the wall switch; (3)
evidence indicating water migration from the second floor to Room
170; and (4) the replacement of the wall switch and lamp fixture in
Room 170. Similar allegations were included as part of the
Williamsons’ RICO counterclaims in the federal suit. Indeed,
attorney Smith conceded that the facts pertaining to the
nullification suit were essentially the same as those involved in
the RICO counterclaims. In the federal suit, the district court
granted summary judgment dismissing the RICO counterclaims,
finding: (1) that there was a lack of evidence showing an alleged
46
scheme by the insurance parties to present a fraudulent defense in
the state negligence suit; (2) that the existence of certain
photographs not revealing a cement slab between Rooms 170 and 270
did not confirm a scheme to defraud; (3) that any alleged
alterations of the wall switch or the hanging lamp were not
indicative of a scheme to defraud; (4) that the possible creation
of a drain hole above Room 170 after Sonya’s electrocution did not
confirm a scheme to defraud; (5) that none of the evidence
submitted by the Williamsons indicated that Sonya’s electrocution
could not have been staged or fraudulent; and (6) that an abundance
of evidence pointed to the possibility of fraud by the Williamsons.
Article 2004 provides for the annulment of a final judgment
obtained by fraud or ill practices. There are two criteria to
determine that a judgment has been obtained by actionable fraud or
ill practices: (1) the circumstances under which the judgment was
rendered show the deprivation of legal rights of the litigant who
seeks relief, and (2) the enforcement of the judgment would be
unconscionable and inequitable. See Kem Search, Inc. v. Sheffield,
434 So. 2d 1067, 1070 (La. 1983). In addition, article 2004 is
“not limited to cases of actual fraud or intentional wrongdoing,
but is sufficiently broad to encompass all situations wherein a
judgment is rendered through some improper practice or procedure
which operates, even innocently, to deprive the party cast in
judgment of some legal right, and where the enforcement of the
47
judgment would be unconscionable and inequitable.” Id.
The district court’s findings clearly demonstrate that the
court considered and adjudged the issue of fraud. But the
amorphous and broad definition of ill practices suggests that the
district court did not actually litigate an ultimate issue of fact
that precludes the possibility of litigating the issue of ill
practices and the corresponding nullification claim. Indeed, none
of the findings say directly that the insurance parties’ actions
were not ill practices. Accordingly, those findings do not prevent
the litigation of whether some of the alleged acts committed by the
insurance parties were improper practices that operated, even
innocently, to deprive the Williamsons some legal right.
The grant of summary judgment in favor of St. Paul on the
counterclaims asserted by the Williamsons in the federal court
proceeding for acts of RICO and fraud that allegedly occurred
during the state court trial is sufficient to support an injunction
by the federal court to prevent relitigation in the state court of
"fraud" as a grounds for nullification of the original state court
decision. But that summary judgment is insufficient to prevent
relitigation of "ill practices" under the Louisiana statute.
Consequently, we vacate the injunction issued by the district court
and remand that injunctive relief to the district court for
reissuance by the district court so as to be expressly limited to
the fraud issue.
48
CONCLUSION
Besides the procedural irregularity associated with the sua
sponte grant of summary judgment, the jury finding that Sonya’s
injuries were the "result of a staged accident or fraud" does not,
as a matter of law, satisfy all of the elements of a malicious
prosecution claim. Therefore, the district court erred in applying
Louisiana res judicata law to hold that Sonya was liable on the
malicious prosecution theory. Accordingly, we vacate the judgment
against Sonya and remand the malicious prosecution claim of St.
Paul to the district court for trial on the merits. In addition,
we affirm the district court’s evidentiary rulings and the summary
judgment dismissing the Williamsons’ counterclaims.
As for St. Paul’s RICO claims, we vacate and remand the
following for proceedings consistent with this opinion: 1) the
judgment in favor of the Williamsons with respect to St. Paul’s §
1962(a) claim, insofar as it pertains to the CIGNA checks; 2) the
judgment in favor of the Williamsons concerning the § 1962(c)
claim; and 3) the judgment in favor of the Williamsons with respect
to the § 1962(d) claim for conspiracy to violate § 1962(c).
Furthermore, we remand to the district court for consideration St.
Paul’s § 1962(d) claim for conspiracy to violate § 1962(a).
Finally, we vacate the injunction issued by the district court
49
and remand that injunctive relief to the district court for
reissuance by the district court so as to be expressly limited to
the fraud issue.
All outstanding motions are denied.
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51
EDITH H. JONES, dissenting:
I respectfully dissent. Despite the majority’s exacting
discussion of the issues that allegedly preclude affirming the
trial court’s judgment, I am unpersuaded on two conclusions in
particular: that the jury finding of a staged or fraudulent action
does not subsume the elements of malicious prosecution1; and that
the injunction against litigation of the Williamsons’ “ill
practices” claim must be overturned.2 The result of these twin
rulings is to nullify the original verdict -- extraordinary as it
is -- that Sonya’s electrocution claim was staged or fraudulent.
Far worse, though, is the parties’ abuse of the courts
over the last decade. To stage an accident for insurance tribute
is reprehensible. But it’s also hard to see what good, or what
collectable money judgment, may come of a RICO suit against these
pathetic perpetrators. This litigation, like this dissent, should
end!
1
How is it possible to justify the majority’s conclusion that,
even though the electrocution accident was staged or fraudulent,
there might have been probable cause to file Sonya’s suit?
2
The majority strains common sense, it seems to me, in holding
that even though the insurers committed no fraud in defending
Sonya’s electrocution lawsuit -- which was started by a staged or
fraudulent action of plaintiffs -- the insurers may have engaged in
“ill practices” of litigation.
52