Bivens Gardens Office v. Barnett Banks of Florida

• Decision Date: 04 May 1998
• Docket Number: No. 97-2473.,No. 96-2222.,96-2222.,97-2473.
• Parties: BIVENS GARDENS OFFICE BUILDING, INC., James A. Karns, et al., Plaintiffs-Appellants, v. BARNETT BANKS OF FLORIDA, INC., Bivens Center, Inc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

140 F.3d 898

BIVENS GARDENS OFFICE BUILDING, INC., James A. Karns, et al., Plaintiffs-Appellants, v. BARNETT BANKS OF FLORIDA, INC., Bivens Center, Inc., et al., Defendants-Appellees.

No. 96-2222.

No. 97-2473.

United States Court of Appeals, Eleventh Circuit.

May 4, 1998.

R. Stuart Huff, Coral Gables, FL, Steven G. Mocarski, Key Biscayne, FL, Adam H. Lawrence, Lawrence & Daniels, Miami, FL, for Plaintiffs-Appellants.

Paul I. Perez, Jacksonville, FL, for Defendants-Appellees.

Appeals from the United States District Court for the Middle District of Florida.

Before COX and CARNES, Circuit Judges, and MARCUS^*, District Judge.

CARNES, Circuit Judge:

Plaintiffs Fred Konstand, Elizabeth Blatenburger (as representative of the Estate of James Karns), and George Malick (both individually and as a partner in Malick Investment Company) appeal from the orders and judgments of the district court effectively extinguishing plaintiffs' RICO and state law claims arising out of the allegedly unlawful takeover, management, and sale of a hotel in which plaintiffs had various ownership interests during the period from 1975 to 1981. We hold that although the district court was correct to grant judgment in favor of the defendants on several of the claims, it erred in granting summary judgment on some of the RICO claims and on Konstand's state law shareholder derivative claim.

First, we affirm in part and vacate and remand in part the district court's dismissal of plaintiffs' RICO claims on standing grounds. Specifically, we hold that Konstand as a BCI creditor has standing to pursue one of his individual claims, and that Konstand and Karns have stated shareholder derivative claims for which they have RICO standing. On the other hand, the district court correctly ruled that the individual claims of Karns and Malick, as well as Malick's partnership derivative claim, could not be pursued under RICO. Second, we affirm the district court's denial of Malick's motion to amend and supplement the complaint. Third, we vacate and remand the district court's grant of summary judgment on Konstand's state law shareholder derivative claim. Fourth, we affirm the court's evidentiary rulings at trial that excluded evidence of BCI's management of the Gainesville Hilton and its sale in 1981. Fifth, we affirm the district court's directed verdict in favor of the defendants on all of the counts that reached trial, namely, Karns' state law shareholder derivative claim and the plaintiffs' civil conspiracy claim. Sixth, we affirm the district court's denial of postjudgment relief. Finally, we deny both plaintiffs' motion for attorneys' fees and defendants' motion for double costs. Accordingly, we affirm in part, and vacate and remand in part.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. THE FACTS¹

In 1969, plaintiff Fred Konstand planned the development of forty acres of land in Gainesville, Florida. The development was to include a shopping center, condominiums, an office building, and a hotel. In furtherance of that plan, Konstand incorporated several entities, including defendant Bivens Center, Inc. ("BCI"). Konstand was originally the majority shareholder of BCI, and James Karns was the largest minority shareholder. BCI became the general partner of Bivens Gardens Hotel, Ltd. ("BGH"), a limited partnership formed to develop the hotel. BCI owned one-half of BGH, while the other half was owned by approximately twenty limited partners, including plaintiffs George Malick and Malick Investment Company (collectively "Malick"). BGH held title to the hotel built on the property, the Gainesville Hilton, from the time that it was built until it was sold in 1981. Konstand also formed Bivens Gardens Office Building ("BGOB") to develop the office building. That building, however, was never constructed.

Konstand funded these ventures both through the sales of BCI shares and BGH limited partnerships, and through outside lenders. Guardian Mortgage Investors ("GMI"), a real estate investment trust, was a principal lender, lending money to both BGOB and BGH. Konstand and BCI also jointly borrowed $200,000 from defendant University City Bank ("UCB").² This loan was secured by a pledge of most or all of Konstand's stock in BCI.

On October 18, 1974, UCB sent Konstand a notice that the $200,000 loan was in default. The plaintiffs allege that on February 20, 1975, Robert Koons (then president of UCB) and Robert Lanzilotti (then chairman of defendant Barnett Bank and a BGH limited partner) went with UCB attorney Selig Golden to the home of Karns, and there obtained a fraudulent proxy from him.³ That proxy was then used to remove the incumbent directors of BCI, and to replace them with new directors who, at the defendants' behest, ousted Konstand from the presidency and control of BCI. By installing their own directors, the defendants effectively gained control of both BCI and BGH.

The next day, February 21, 1975, UCB filed suit against Konstand and BCI in state court on the defaulted loan. UCB prevailed in state court, and obtained permission to sell the BCI shares that Konstand had pledged to secure the loan. UCB then bought those shares at the public sale for a price of $501. At this point, Konstand had clearly lost control of BCI; he was no longer president and owned (at most) only .93 share of BCI stock. UCB installed defendant Lee Hanna as BCI president in 1975. Hanna, who served as president of BCI from 1975 to 1977, was 24 years of age in 1975; he was a UCB employee with no business experience, and he spent less than five percent of his work time on BCI matters.

On June 6, 1975, BGH filed for bankruptcy protection because it was unable to make interest payments on the mortgage held by GMI, the construction lender. While BGH was in bankruptcy from 1975 to 1981, UCB did not operate the hotel directly; instead it served as caretaker for the hotel. UCB hired two hotel management companies to manage the hotel during this time: International Hospitality Group from 1975 to 1976, and Heritage Management Company from 1976 until the sale of the hotel in 1981.

In April 1981, with the approval of the bankruptcy court, the hotel was sold as part of the reorganization of BGH. The plaintiffs claim that the sale was improper because the defendants secured the approval of the bankruptcy court by misrepresenting that BCI and BGH shareholders had approved the sale. Plaintiffs also contend that the defendants misrepresented the value of the hotel to the bankruptcy court, and they contend that it was sold for $1.5 million less than its fair market value.

B. THE PROCEEDINGS TO DATE

The plaintiffs commenced this action on July 21, 1983. The first three counts of their complaint allege claims pursuant to the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. § 1961 et seq. Count I sets forth the plaintiffs' three causes of injury — the takeover of BCI in 1975, the management of the hotel from 1975 to 1981, and the sale of the hotel in 1981. Count II then alleges that UCB violated RICO in causing these injuries by engaging in a pattern of racketeering activity that included wire fraud, mail fraud, and bankruptcy fraud. Counts IV and V allege state law claims: a shareholder derivative count (Count IV) and a civil conspiracy count (Count V). By October 1988, all of the defendants had moved for summary judgment. On February 3, 1989, the district court entered summary judgment against all of the plaintiffs on all five counts on statute of limitations grounds. The plaintiffs appealed from this judgment.

On July 31, 1990, this Court affirmed in part and reversed in part. See Bivens Gardens Office Bldg. v. Barnett Bank of Fla., Inc., 906 F.2d 1546 (11th Cir.1990). In that decision, we held that the district court analyzed the plaintiffs' claims incorrectly insofar as it considered the complaint as a single RICO claim. Instead, we read the complaint as having alleged three distinct RICO injuries: (1) the takeover of BGH's hotel in 1975; (2) the alleged skimming of profits from the hotel from 1975 to 1981; and (3) the sale of the hotel in 1981 for less than its fair market value. See id. at 1551. We held that the earliest of these injuries — the 1975 takeover of the hotel — was time barred insofar as Konstand was concerned. See id. at 1556. We left the question of whether the first injury was time barred as to the other plaintiffs, as well as whether any of the other injuries might be time barred with regard to any or all plaintiffs, for resolution by the district court. See id. at 1555-56, 1557 n. 13. Accordingly, we affirmed the district court's grant of summary judgment against Konstand on that one claim, but reversed with respect to Konstand's other claims. We also reversed the district court's order insofar as it pertained to the other plaintiffs' claims. See id. at 1557.

On remand, the defendants again moved for summary judgment, contending mainly that the remanded claims were time-barred and that the plaintiffs lacked standing to bring RICO and shareholder derivative actions. Defendants then filed additional summary judgment motions raising a variety of arguments, but focusing on the statute of limitations and RICO standing issues.

While these motions for summary judgment were pending, Malick moved to amend the complaint to clarify the "derivative nature" of his claims in the RICO and civil conspiracy counts. The plaintiffs, including Malick, also moved to supplement the complaint to allege events concerning the sale of the hotel that had occurred after they filed the complaint.

By order dated August 3, 1993, the district court denied those motions to amend and supplement the complaint. As part of the same order, the court granted summary judgment against the plaintiffs on the RICO counts of the complaint (Counts I-III), primarily on the grounds that the plaintiffs lacked the standing to assert those RICO claims. The court also found that because Malick was...