Beck v. Prupis
| Decision Date | 15 December 1998 |
| Docket Number | 95-5586,Nos. 95-4844,s. 95-4844 |
| Citation | 162 F.3d 1090,1998 WL 870253 |
| Parties | RICO Bus.Disp.Guide 9614, 14 IER Cases 1153, 12 Fla. L. Weekly Fed. C 317 Robert A. BECK, II, Plaintiff-Appellant, v. Ronald M. PRUPIS, Leonard Bellezza, Ernest J. Sabato, William Paulus, Jr., Harry Olstein, Frederick C. Mezey, Byron L. Sparber, Joseph S. Littenberg, Defendants-Appellees. Robert A. BECK, II, Plaintiff-Appellee, v. Ronald M. PRUPIS, Leonard Bellezza, Ernest J. Sabato, William Paulus, Jr., Harry Olstein, Frederick C. Mezey, Byron L. Sparber, Joseph S. Littenberg, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Jay Starkman, Delgado, Befeler, Starkman & Magolnick, P.A., Miami, FL, Elizabeth J. DuFresne, Steel Hector & Davis, Miami, FL, for Appellant in No. 95-4844.
Bernard S. Mandler Gunster, Miami, FL, Michael M. Rosenbaum, Budd, Larner, Gross, Rosenbaum, Greenberg & Sade, Short Hills, NJ, Kenneth R. Hartmann, Kozyak, Tropin & Throckmorton, P.A., Miami, FL, for Appellees in No. 95-4844.
Michael M. Rosenbaum, Budd, Larner, Gross, Rosenbaum, Greenberg & Sade, Short Hills, NJ, Kenneth R. Hartmann, Kozyak, Tropin & Throckmorton, P.A., Miami, FL, for Appellants in No. 95-5586.
Jay Starkman, Delgado, Befeler, Starkman & Magolnick, P.A., Miami, FL, for Appellee in No. 95-5586.
Appeals from the United States District Court for the Southern District of Florida.
Before TJOFLAT and BARKETT, Circuit Judges, and GODBOLD, Senior Circuit Judge.
This case hinges on the following question: Must a plaintiff bringing a civil RICO conspiracy claim prove that the overt act (in furtherance of the conspiracy) by which he was injured was an "act of racketeering"? We answer this question in the affirmative, and therefore affirm the district court's grant of summary judgment.
This case arises out of the relationship between Robert A. Beck, II, the plaintiff, and members of the board of directors of the Southeastern Insurance Group (SIG). 1 SIG was a holding company founded in 1983. It owned three subsidiaries, all of which were in the business of writing surety bonds for construction contractors. The defendants in this case were all directors of SIG at one time.
In 1987, some of the directors of SIG (including the defendants) began engaging in improper activity. For instance, they set up an entity called Construction Performance Corporation (CPC), which extracted substantial "fees" from otherwise non-creditworthy contractors in order to qualify them for SIG surety bonds, in violation of insurance regulations. The directors reneged on promises to indemnify certain contractors, and diverted corporate funds to their personal use. Finally, these directors knowingly classified certain SIG liabilities as assets on SIG's financial statements, causing the statements drastically to overestimate the corporation's value. These false financial statements were then given to regulators, shareholders, and creditors.
This misconduct eventually led to a lawsuit by the Florida Department of Insurance and a shareholders' derivative suit against SIG's officers and directors. In January 1990, as a result of the illegal activities of certain SIG directors and the consequent lawsuits, SIG filed for bankruptcy in the Southern District of Florida.
Meanwhile, in August 1983, SIG had hired Beck to serve as president and as a member of the board of directors. 2 His employment contract, as revised in 1986, did not expire until 1991. The contract specified the grounds on which Beck's employment could justifiably be terminated, 3 and stated that termination for any other reason would result in SIG being required to repurchase Beck's substantial stock holdings in the company. The repurchase price would be the fair market value of the stock as determined by an investment bank.
For most of his tenure, Beck was unaware of the illegal activities of the other SIG officers and directors. When he became aware of this misconduct in early 1988, he attempted to correct them internally and informed insurance regulators about improprieties in SIG's financial statements. The other directors, afraid that Beck might expose their misdeeds, arranged for a consulting firm to write a report criticizing Beck's performance, thus providing the directors an excuse to terminate Beck's employment without having to repurchase Beck's stock. In May 1988, Beck was fired.
While president, Beck made a number of unwise (in retrospect) personal financial decisions in relation to SIG. He purchased, as part of a 1986 private placement, a $150,000 debenture and $75,000 worth of stock, and (together with other directors), in December 1987, personally guaranteed a $7.5 million bank loan to SIG. When SIG filed for bankruptcy, Beck's SIG investments became practically worthless, and he became potentially liable for the bank loan. 4
Beck claims that SIG's other directors fraudulently induced him to make these financial decisions. 5 Specifically, Beck claims that the defendants' failure to tell him about his impending termination 6 or about the illegal activities at SIG induced him to purchased the debenture and the stock. For these same reasons, along with the defendants' issuance of erroneous financial statements, Beck claims that he was fraudulently induced to guarantee the bank loan and to retain his stock longer than he would have otherwise.
Beck claims that these inducements, as well as the creation of fictitious reasons for his firing, constitute mail fraud, see 18 U.S.C. § 1341 (1994), and wire fraud, see 18 U.S.C. § 1343 (1994), on the part of the defendants. Furthermore, Beck claims that the combination of these offenses constitutes a "pattern of racketeering activity" 7 under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968 (1994), and that the defendants' participation in that pattern of racketeering activity injured him, giving him a private right of action based on RICO's substantive provisions. See 18 U.S.C. §§ 1962(c), 1964(c) (1994). 8 Beck also alleges that the defendants conspired to commit racketeering acts against third parties (through the phony financial statements, extortion of illegal fees, etc.); according to Beck, because his refusal to participate in and partial disclosure of that conspiracy resulted in his termination, he was injured "by reason of" the conspiracy and therefore has a claim under RICO's conspiracy provision, 18 U.S.C. § 1962(d).
Beck sued the defendants for these alleged RICO violations, as well as numerous alleged violations of state law. The defendants moved for summary judgment and for sanctions pursuant to 28 U.S.C. § 1927 and Rule 11 of the Federal Rules of Civil Procedure. The district court granted the motion for summary judgment on Beck's RICO claims, and then declined to exercise supplemental jurisdiction over Beck's state law claims. The court denied the motion for sanctions. Beck appeals the summary judgment ruling, and the defendants appeal the denial of sanctions.
Most of Beck's RICO claims allege substantive violations premised on 18 U.S.C. § 1962(c). We find these claims to be without merit, for the reasons discussed below.
To prove any RICO violation, a plaintiff must prove the existence of a "pattern of racketeering activity." 18 U.S.C. § 1962. A variety of acts can constitute "racketeering activity," see 18 U.S.C. § 1961(1); the acts alleged in this case are mail and wire fraud, the substantive elements of which are identical. 9 See Pelletier v. Zweifel, 921 F.2d 1465, 1498 (11th Cir.1991). Both offenses consist of intentional participation in a scheme to defraud another of money or property. See id. A "scheme to defraud" involves the making of misrepresentations intended and reasonably calculated to deceive persons of ordinary prudence and comprehension. See id. at 1498-99. This means, inter alia, that the plaintiff must prove that a reasonable person would have relied on the misrepresentations. See United States v. Brown, 79 F.3d 1550, 1557 (11th Cir.1996).
In addition to proving racketeering activity, a civil RICO plaintiff must show that the racketeering activity caused him to suffer an injury. See 18 U.S.C. § 1964(c). This is true even when a criminal conviction for the underlying racketeering activity would not require a showing of actual injury, as is the case with mail and wire fraud. See Pelletier, 921 F.2d at 1499. Furthermore, the racketeering activity must be more than simply the "but for" cause of the injury; it must also be the proximate cause. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 1317-18, 117 L.Ed.2d 532 (1992). "[A] factor is a proximate cause if it is a substantial factor in the sequence of responsible causation." Cox v. Administrator United States Steel & Carnegie, 17 F.3d 1386, 1399 (11th Cir.1994) (internal quotation omitted).
Because this case comes to us on a granted motion for summary judgment, we have viewed all evidence in favor of the non-moving party (i.e., Beck). See Rayle Tech, Inc. v. DEKALB Swine Breeders, Inc., 133 F.3d 1405, 1409 (11th Cir.1998). Summary judgment is to be granted when the evidence shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment is appropriate where the moving party shows an absence of evidence to support an essential element of the nonmoving party's case. See Weiss v. School Bd. of Hillsborough County, 141 F.3d 990, 994 (11th Cir.1998). For each alleged RICO violation in this case, Beck has failed to produce evidence to support at least one of the essential elements of a RICO claim based on mail and wire fraud. For this reason, we affirm the district court's grant of summary judgment. 10
Beck claims that he was fraudulently induced to make certain unwise financial decisions in three ways: (1) the defendants'...
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