DAVIS-LYNCH, INC., Plаintiff-Appellee v. JOSE ALFREDO MORENO d/b/a HANNA-SKYE and ACCURATE and RONALD WAYNE PUCEK, Defendants-Appellants
No. 10-20859
United States Court of Appeals for the Fifth Circuit
January 10, 2012
Appeals from the United States District Court for the Southern District of Texas
WIENER, Circuit Judge:
Plaintiff-Appellee Davis-Lynch, Inc. (“Davis-Lynch” or the “Appellee“) filed a lawsuit against several defendants, including Defendant-Appellants Jose Alfredo Moreno (“Moreno“) and Ronald Wayne Pucek, III (“Pucek“) (collectively the “Appellants“), seeking injunctive relief and damages pursuant to the Racketeer Influenced and Corrupt Organizations Act,
I. Facts & Proceedings
A. Facts
Davis-Lynch is a designer, manufacturer, and marketer of cementing and floating equipment for the oil field industry. Nancy Moreno (“Nancy“), an employee of Davis-Lynch, was in charge of accounts
After discovering that one of its copy machines was located at facilities owned or operated by Nancy‘s son, Davis-Lynch undertook an investigation into the accounts payable that Nancy managed. According to its complaint, Davis-Lynch discovered through its investigation that Nancy and several others had embezzled millions of dollars from Davis-Lynch. Specifically, Davis-Lynch alleges that Nancy and other Davis-Lynch employees issued checks on Davis-Lynch‘s accounts payable to various entities and individuals that were not entitled to any funds, including to Pucek and to Moreno and his company, Hanna-Skye, Inc. (“Hanna-Skye“).
B. Proceedings
Davis-Lynch filed a lawsuit against more than 20 defendants, including Moreno and Pucek, seeking injunctive relief and damages pursuant to RICO and Texas law.1 In their initial answers to the complaint, Moreno and Pucek each invoked his Fifth Amendment privilege against self-incrimination. Thereafter, during a contempt hearing held on September 13, 2010, Moreno waived his Fifth Amendment privilege in open court and answered questions from Davis-Lynch‘s attorney. The transcript of the hearing reflects the following exchange:
Q [Attorney for Davis-Lynch]: Now, you previously pled the Fifth in this case. You‘re aware of that?
A [Moreno]: Yes, sir.
Q: And you have withdrawn, I take it, your plea to the Fifth Amendment right?
A: Looks that way.
During this hearing, Davis-Lynch‘s attorney asked Moreno substantive questions regarding his knowledge of the sources from which Nancy obtained her
funds and whether he knew that funds provided to his company, Hanna-Skye, were embezzled.
A month later, on October 13, 2010, Davis-Lynch filed a motion for summary judgment against most of the defendants, including Mоreno and Pucek. Specifically, Davis-Lynch requested that the district court hold that each of the defendants, including Moreno and Pucek, had committed both substantive RICO violations2 and had participated in a RICO conspiracy3, as well as several violations under Texas statutes and common law, including (1) statutory theft4, (2) common law fraud and misrepresentation, (3) common law civil conspiracy, (4) common law breach of fiduciary duty, and (5) common law conversion, misappropriation, and imposition of constructive trust.
In support of its motion for summary judgment, Davis-Lynch attached an expert report and affidavit of Charles C. Cummings, the examiner it had hired to investigate its account payables. In his affidavit, Cummings states that “it is my opinion that the defendants against whom summary judgment is sought were responsible for the loss of $15,000,000 by Davis-Lynch, Inc.” Although, as stated by Davis-Lynch, Cummings’ expert report (the “Cummings report“) is
“the best summary of the evidence of appellants’ involvement . . .“, it also provides only broad generalizations and but a very few specific details rеgarding Moreno and Pucek.5
The only detailed and undisputed facts in the report with respect to Moreno are that Nancy created at least one false entry in Davis-Lynch‘s records indicating that Hanna-Skye received a Davis-Lynch machine for which it did not pay. Specifically, the report states that, on one occasion, Nancy noted the sale of a machine from Davis-Lynch to Hanna-Skye in the amount of $8,000. In reviewing the entries and checks deposited, however, the report contends that the only consideration received by Davis-Lynch in payment for the machine were actually scrap and metal payments, not checks from Hanna-Skye in payment for the machinе.6
With respect to Pucek, the report states that Davis-Lynch‘s records reflect that it paid Pucek over $96,000.00 after 2006. The report further states that Nancy instructed a Davis-Lynch employee to create some of the entries and quotes that employee as stating that she does not know if Pucek “actually did the work.” The report also quotes the “Plant Supervisor” at Davis-Lynch who states that Pucek‘s last job was performed sometime in 2005 or 2006. The report
contends that several of the Davis-Lynch checks are traceable to Pucek and his wife‘s bank accounts, but notes that its analysis is not yet final.
Moreno and Pucek do not deny that they received illegally obtained funds or materials from Davis-Lynch. They simply deny that they knew that the funds were embezzled and claim that they understood the funds came from legitimate sources, i.e. Nancy‘s life savings and inheritance or
Both Moreno and Pucek filed responses to Davis-Lynch‘s motion for summary judgment. Moreno stated that he had already waived his Fifth Amendment privilege, and Pucek stated that he was waiving the privilege currently in response to the motion. In addition, each Appellant filed an accompanying affidavit denying Davis-Lynch‘s claims. Davis-Lynch then filed a motion to strike Moreno and Pucek‘s affidavits, objecting to their withdrawal of their Fifth Amendment privilege. The district judge granted Davis-Lynch‘s motion to strike both Moreno‘s and Pucek‘s affidavits, stating in regard to both of the Appellants that their respective waivers of privilege “do[ ] not overcome [their] earlier and consistent refusal to participate in discovery during the designated period of pre-trial proceedings.”
The district court then granted Davis-Lynch‘s motion for summary judgment as to all defendants, stating that “Davis-Lynch has established a RICO violation and conspiracy on the part of Nancy and the defendants to defraud Davis-Lynсh.”7 The district court also stated that all of the defendants “aided and abetted Nancy in engaging in ‘theft, fraud and misrepresentation,
conversation, misappropriation of funds and breach of a fiduciary duty owed by Davis-Lynch.” In granting Davis-Lynch‘s motion for summary judgment, the district court noted that it had struck Moreno‘s and Pucek‘s responses and that it accepted Davis-Lynch‘s version of the facts as true. This appeal followed.
II. Withdrawal of Fifth Amendment Privilege
A. Standard of Review
A district court‘s order denying a party‘s withdrawal of a previously asserted Fifth Amendment privilege in a civil case is reviewed for abuse of discretion.8 “A trial court abuses its discretion when its ruling is based on an erroneous view of the law or a clearly erroneous assessment of the evidencе.”9
B. Withdrawal
This court has not ruled on whether and under what circumstances a party may withdraw its invocation of the Fifth Amendment privilege against self-incrimination in a civil case. Multiple Circuits, however, have addressed this issue, noting that it is dependent on the particular facts and circumstances of each case.10
In addition, this court has held that, when there are competing interests posed by an invocation of the Fifth Amendment, a court should measure “the relative weights of the parties’ competing interests with a view toward accommodating those interests, if possible“.15 Accordingly, Circuit Courts have weighed the specific facts of eaсh case in which a civil litigant has attempted to withdraw his invocation of the Fifth Amendment privilege.
Generally, “[t]he court should be especially inclined to permit withdrawal of the privilege if there are no grounds for believing that opposing parties suffered undue prejudice from the litigant‘s later-regretted decision to invoke the Fifth Amendment.”16 Conversely, withdrawal is not permitted if the litigant is trying to “abuse, manipulate or gain an unfair strategic advantage over opposing parties.”17 The timing and circumstances under which a litigant withdraws the privilege are relevant factors in considering whether a litigant is attempting to abuse or gain some unfair advantage.
For example, some Circuits have not allowed а litigant to withdraw the privilege when he invoked the privilege throughout discovery and then sought to withdraw the privilege either to support or defend against a motion for summary judgment.18 In denying a litigant‘s attempt
withheld information at summary judgment places the opposing party at a significant disadvantage in responding to such information.20
On the other hand, a party may withdraw its assertion of the Fifth Amendment privilege, even at a late stage in litigation, if circumstances indicate that (1) the litigant was not using the privilege in a tactical, abusive manner, and (2) the opposing party would not experience undue prejudice as a result.21 In one case, the Third Circuit reversed a district court‘s order for summary judgment when the district court had precluded defendants from defending against the motion by withdrawing their assertion of the Fifth Amendment privilege.22 In reaching its conclusion that the defendants had not used the privilege in an abusive manner and that the SEC was not unduly prejudiced by withdrawal of the privilege, the court noted that the defendants were pro se and were unaware of the сonsequences of asserting the privilege. The court also noted that the SEC had collected a great deal of evidence during discovery, including 30,000 documents that one defendant had provided.23
Similarly, the Seventh Circuit upheld a district court‘s decision to allow defendants who had previously invoked the Fifth Amendment privilege during discovery to withdraw the privilege and testify at trial. In reaching its decision, the appellate court noted that it “does not appear to us that the defendants were
gaming the system” because they sought to withdraw their invocation of the privilege around the time that the prosecutor “was wrapping up his probe” in the criminal case.24 Therefore, a party may withdraw its invocation of the Fifth Amendment privilege, even at a late stage in the process, when circumstances indicate that there is no intent to abuse the process or gain an unfair advantage, and there is no unnecessary prejudice to the other side.
C. Moreno
Moreno waived his privilege more than a month before the discovery deadline, providing Davis-Lynch with several
D. Pucek
Pucek contends that the district court erred in striking his affidavit because he withdrew his assertion of the Fifth Amendment privilege within the time allowed to respond to Davis-Lynch‘s motion for summary judgment. Pucek also insists that little prejudice would result to Davis-Lynch because there were five days left in the discovery period at the time that Pucek withdrew his
privilege, and that, at most, Davis-Lynch would have had “to takе two depositions in one week.”
Unlike Moreno‘s withdrawal, however, Pucek‘s withdrawal of his Fifth Amendment privilege in response to Davis-Lynch‘s motion for summary judgement appears more likely to be an attempt to abuse the system or gain an unfair advantage. Like the parties that attempted to withdraw their assertion of the privilege in United States v. Certain Real Prop. and Premises Known as: 4003-4005 5th Ave., Brooklyn, N.Y., 55 F.3d 78 (2d Cir. 1995), Edmond v. Consumer Prot. Div., 934 F.2d 1304 (4th Cir. 1991), and United States v. Parcels of Land, 903 F.2d 36 (1st Cir. 1990), Pucek invoked his Fifth Amendment privilege throughout the discovery process, only to withdraw his assertion in the face of a motion for summary judgment. In withdrawing the privilege at such a late stage, Pucek withheld information that Davis-Lynch could have used in its investigation, only to provide information at the last moment, leaving Davis-Lynch at a disadvantage. Unlike the situation as to Moreno, Davis-Lynch had less than a week to depose Pucek before the close of the discovery period. Given Pucek‘s eleventh-hour withdrawal of his Fifth Amendment privilege and the cost and delay that Davis-Lynch would incur as a result, we are satisfied that the district court did not abuse its discretion in denying Pucek‘s withdrawal, and we affirm that denial.
III. Motion Summary Judgment
A. Standard of Review
We review a district court‘s grant of summary judgment de novo, applying the same legal standards as the district court.26 Summary judgment should be granted if “there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.”27 A genuine issue of material fact exists when the evidence is such that a reasonable jury could return a verdict for the non-movant.28 “[A]ll facts and evidence
B. RICO Substantive Holding: § 1962(a)
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 . . .”33
It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketеering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income,
in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
To establish a claim under
In this case, Davis-Lynch has not shown that it was injured from the investment of the alleged racketeering proceeds. As previously stated, the only undisputed facts presented by Davis-Lynch appear to be that (1) Pucek received and deposited checks from Davis-Lynch for work he did not perform, and (2) Moreno, through Hanna-Skye, received a machine for which neither he nor his company paid. Davis-Lynch does not discuss or a present facts regarding how these alleged racketeering proceeds (i.e., the monеy received by Pucek and the machine received by Hanna-Skye) were then invested in any enterprise. Furthermore, even if Davis-Lynch were able to show that these alleged proceeds
of the funds paid to him after 2006 and Hanna-Skye‘s acquisition or use of the machine noted in Davis-Lynch‘s records actually injured Davis-Lynch. At most, Davis-Lynch has shown only that the payment of money to Pucek for work that he did not perform and the removal of one of its machines without paymеnt harmed Davis-Lynch, stating only that “stolen funds” were in the amount of $15,072,474.92. Accordingly, the district court erred by holding that Pucek and Moreno were liable for substantive civil RICO violations under this provision.
C. RICO Substantive Holding: § 1962(c)
“It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise‘s affairs through a pattern of racketeering activity or collection of unlawful debt.”
To “participate, directly or indirectly, in the conduct of such enterprise‘s affairs“, an individual must have some part in the operation or management of the еnterprise itself.37 An enterprise may be “operated” or “managed” by those not employed by the enterprise if they exert control over it as, for example, by bribery.38
Davis-Lynch has failed to show that it was entitled to summary judgment with respect to this provision because it has not presented facts to demonstrate that either Moreno or Pucek “operated” or “managed” the enterprise under the instant case. Receiving funds or materials on its own, without more, does not show that Moreno or Pucek actually operated the scheme to obtain those funds or materials. As there is nothing in the Cummings report showing that Pucek or Moreno had any control over the enterprise to embezzle funds frоm Davis-
Lynch, the district court erred in granting summary judgment to Davis-Lynch against Pucek and Moreno or his company for substantive violations of RICO with respect to this provision.
D. RICO Conspiracy Holding: § 1962(d)
Subsection (d) of § 1962 provides for a RICO conspiracy, stating that “[i]t shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of [§ 1962].” To demonstrate a civil RICO conspiracy, a claimant must show that : (1) two or more persons agreed to commit a substantive RICO offense, and (2) the defendant knew of and agreed to the overall objective of the RICO offense.39
A person need not commit or agree to commit the requisite two or more predicate acts of “racketeering activity” to be held criminally liable as a conspirator under RICO.40 To have standing to establish a civil RICO conspiracy, however, a claimant must allege injury from an act that is independently wrongful under
Here, the district court specifically relied on the Supreme Court‘s holding in Salinas v. United States, 522 U.S. 52, 65 (1997) to support holding Moreno and Pucek liable for a civil RICO conspiracy.43 Although Salinas held that a
defendant need only know of and agree to the overall objective of the RICO offense to be held criminally liable for a RICO conspiracy, the Supreme Court‘s subsequent holding in Beck v. Prupis, 529 U.S. 494 (2000) made clear that, “to establish a civil RICO conspiracy, a RICO conspirаcy plaintiff [must] allege injury from an act that is analogous to an act of tortious character, meaning an act that is independently wrongful under RICO.”44 (emphasis added). Therefore, Davis-Lynch needed to allege injury from an act on the part of Pucek and Moreno that was independently wrongful under RICO.
Furthermore, the Supreme Court observed in Beck that “[t]he specific type of act that is analogous to an act of a tortious character may depend on the underlying substantive violation the defendant is alleged to have committed.”45 Noting that it was not expressing a view on this issue, the Supreme Court explained that, for example, when a plaintiff alleges a violation of
As noted, Davis-Lynch failed to meet its burden showing that it was entitled to summary judgment on its substantive RICO claims under
act that is independently wrongful under RICO, the district court erred in granting summary judgment to Davis-Lynch with respect to its RICO conspiracy claim.
E. “Aiding and abetting“: Texas statutory and common law violations
The district court‘s holding with respect
The district court thus erred in holding that Moreno and Pucek were liable as aiders and abettors of state law offenses under a federal statute. We are limited in our review of a grant of summary judgment in that we cannot consider newly advanced theories.50 Nonetheless, because Davis-Lynch claimed in its motion for summary judgment that the defendants were liable for a civil
conspiracy to violate state law, we may —— and shall —— address the district court‘s grant of summary judgment with respect to this point.
Under Texas common law, a litigant must prove the following elements to establish a claim for civil conspiracy: (1) two or more persons, (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as a proximate result.51 To establish the required “overt act“, a plaintiff must show that the defendant committed an act that, if done alone, would give rise to a cause of action.52 And, although a civil conspiracy may be proven by circumstantial evidence,53 such evidence must constitute more than a mere suspicion.54 Vital facts, however, may not be established by piling inference upon inference.55 “Some suspicion linked to other suspicion produces only more suspicion, which is not the same as some evidence.”56 Without rotely addressing each of Davis-Lynch‘s underlying state law claims, we conclude that it failed to show that either Moreno or Pucek committed an “overt act” to establish a state common law civil conspiracy claim entitling it to summary judgment.
In its motion for summary judgment, Davis-Lynch does not address or discuss the evidence that supports the specific elements
claim of common law civil conspiracy against Moreno and Pucek. Instead, Davis-Lynch claims that its supporting evidence shows that all of the defendants agreed “to set up bogus companies, present bogus invoices, engage in forgeries, all to Davis-Lynch‘s injury.”
With respect to Moreno, again, the Cummings expert report states that Nancy made a false entry indicating that Hanna-Skye paid for a machine, when in fact it had not provided payment. Without more, there is no indication that Moreno created the invoice for the entry or directed that the entry be made. It may be possible to infer that, because his company accepted a machine for which it did not pay, Moreno might have known about the scheme and agreed to it. Nonetheless, such information is not sufficient to provide the basis to infer that Mоreno was the one who created the invoice or directed that it be made. The entry itself is suspicious, but without more, this suspicion does not rise to the level of evidence of an overt act on the part of Moreno to obtain funds or materials illegally from Davis-Lynch.
According to the Cummings report with respect to Pucek, a Davis-Lynch employee created entries of invoices in Davis-Lynch‘s records and claimed that it was at Nancy‘s instruction. The report also states that Cummings traced checks from Davis-Lynch to the bank accounts of Pucek and his wife (Nancy‘s daughter). It is tenuous to infer on the basis of this evidence alone that Pucek created or somehow directed that faux invoiсes be entered in the books of Davis-Lynch. One would have to infer that, because Pucek accepted checks from Davis-Lynch for work that he did not perform, he must have created an invoice for the work or directed employees at Davis-Lynch to create such entries. This is even more tenuous when viewed in light of the report‘s statement that a Davis-Lynch employee created these entries at the instruction of Nancy. Although it is suspicious that Pucek accepted funds for work that he allegedly
did not perform, suspicion, without more, does not constitute evidence that Pucek engaged in an overt act to illegally obtain funds from Davis-Lynch.
Because of the dubious nature of inferring that Moreno and Pucek committed an overt act to obtain funds or materials from Davis-Lynch illegally, summary judgment should not have been granted with respect to its civil conspiracy claim.
An order that essentially amounts to a default judgment is not appropriate on a motion for summary judgment.57 Here, the district court struck the Appellants’ affidavits and then appears to have rendered summary judgment against them on the basis that they had not responded to the Davis-Lynch‘s allegations, without further analysis or consideration. Such a default-like judgment is not appropriate in this context. A plaintiff seeking to establish civil RICO claims must meet its burden of establishing the particular elements of each claim, and the district court may not grant summary judgment if the plaintiff has not done so. Davis-Lynch did not put forth facts to establish its civil RICO and state law claims against the Appellants, relying instead on broad, general statements. On remand, the district court must allow full discovery so that the factual basis of the Appellee‘s claims may be established with respect to the Appellants.
IV. CONCLUSION
The district court‘s order denying Pucek‘s withdrawal of the Fifth Amendment