Jones (Gordon, Laura) v. Childers (John H.), Talent Services, Inc.
| Decision Date | 07 April 1994 |
| Docket Number | No. 92-2744,92-2744 |
| Citation | 18 F.3d 899 |
| Parties | RICO Bus.Disp.Guide 8529 Gordon JONES and Laura Jones, Plaintiffs-Appellees, v. John H. CHILDERS and Talent Services, Inc., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
John R. Kiefner, Jr., Riden, Earle & Kiefner, PA, Clifford J. Hunt, St. Petersburg, FL, for defendants-appellants.
Burton Webb Wiand, Fowler, White, Gillen, Boggs, Villareal & Banker, P.A., Clearwater, FL, for plaintiffs-appellees.
Appeal from the United States District Court for the Middle District of Florida.
Before BIRCH, Circuit Judge, CLARK, Senior Circuit Judge, and HOEVELER *, Senior District Judge.
Defendants John H. Childers and Talent Services, Inc. ("TSI") appeal the judgment of the United States District Court for the Middle District of Florida in a civil action brought by Plaintiffs Gordon and Laura Jones. The district court ruled that Defendants were negligent and committed fraud, breach of fiduciary duty, breach of contract, and Florida civil RICO violations in the course of their representation as the agent and financial advisor of Gordon Jones, a professional football player. Defendants contend that the district court misapplied Florida laws which should have barred most of Plaintiffs' claims and erred in awarding Gordon Jones treble his actual damages pursuant to Florida's civil RICO statute, Fla.Stat. Sec. 772. For reasons explained fully below, we AFFIRM in part and REVERSE in part.
On December 3, 1987, Plaintiffs filed this action in the Circuit Court for Hillsborough County, Florida, alleging that Defendants Childers and TSI committed fraud, negligence, breach of contract, and Florida civil RICO violations while representing Gordon Jones, a professional football player, as his agent and financial advisor. The case was removed, on the basis of diversity jurisdiction, to the United States District Court for the Middle District of Florida on January 25, 1988.
The district court, the Honorable Anne C. Conway presiding, held a non-jury trial of this matter from April 23, 1992, through May 1, 1992, at which time the trial was continued until May 7, 1992, when closing arguments were made. On June 26, 1992, the district court entered its Findings of Fact and Conclusions of Law, ruling that: (i) TSI and Childers are jointly and severally liable to Gordon Jones for $391,455; (ii) Childers is individually liable to Gordon Jones for $50,000 for "mental anguish" caused by Childers' fraudulent conduct with respect to Gordon Jones; and (iii) TSI and Childers are jointly and severally liable to Laura Jones for $73,337 in actual damages and $50,000 in punitive damages. It is from this judgment that Defendants appeal.
TSI is an Illinois corporation which represents professional athletes in contract negotiations and provides business management services, including budgeting advice, tax planning, estate planning, insurance planning, and financial advice. Defendant Childers is the president of TSI and its sole shareholder. Among the agreements that TSI typically entered into with athletes was a Business Management Agreement. On October 28, 1981, Plaintiff Gordon Jones executed a Business Management Agreement with TSI; Childers, as TSI's president, executed the contract on behalf of the firm. At that time, Jones played professional football with the Tampa Bay Buccaneers. He and his fiancee, Laura, lived together and commingled their funds from the fall of 1981 until their marriage in April 1982. Prior to their dealings with Childers and TSI, neither Gordon nor Laura Jones had experience with investments, nor did they have any experience in business. Although Laura Jones holds a Bachelor of Science degree in child development and child care, and Gordon Jones had attended college, neither Laura nor Gordon had taken any business related courses in college.
When Jones retained TSI, he was in debt and paying out more money in obligations than he was receiving from his salary as a football player. A TSI employee, Frank Schuette, recommended in a letter dated Dec. 1, 1981, that Jones purchase a $12,000 interest as a limited partner in an Israeli research project called Telron & Co. ("Telron I"), which would function as a tax shelter. On December 3, 1981, Jones entered into a subscription agreement in which he acknowledged receipt of a private placement memorandum which described the risks inherent in the limited partnership. He did not, however, read the document closely, and instead relied on what Laura Jones told him that Childers had told her about the tax shelters. The district court found that Childers told her the investments were low risk, the risk language was only there because the law required it, and that the IRS had approved the investment. These oral representations were contrary to the risk information disclosed in the private placement memo, which stated the probability of an IRS audit and the tax consequences which would result from an unfavorable result.
In October 1982, Childers sent Gordon Jones a letter informing him that he would likely be audited regarding Telron I. Laura Jones then called Childers and was told that she shouldn't worry because there were no problems and the audit was basically a formality. 2 In early December 1982, following the receipt of a private placement memorandum for a second tax investment shelter in another Telron venture ("Telron II"), Jones executed a subscription agreement and invested $10,000 in Telron II. The district court found that during the period preceding and following this second investment, Childers repeatedly told the Joneses not to be concerned about their investments and that the audit would turn out fine; further, the district court concluded that because the Joneses trusted and relied upon this advice, the couple took no independent action regarding their investments or legal rights. 3
In June 1985, the Joneses received an IRS deficiency notice regarding the Telron I investment, which had by then gone sour and incurred losses. A second notice for the Telron II investment arrived a few months later. The Joneses' settled their tax dispute with the IRS for $90,000. As part of the settlement, they were permitted to claim the Telron investments as theft loss. On December 3, 1987, this action was filed by the Joneses to recover their damages.
On June 26, 1992, the district court issued a lengthy order stating, inter alia, the following factual findings and conclusions of law:
a. Childers was found to be an individual fiduciary to the Joneses, based upon his solicitation of their trust and promises to manage their commingled finances with appropriate caution and skill. TSI also was found to be a fiduciary to both Gordon and Laura Jones.
b. The district court concluded that the Joneses' causes of action did not accrue until June 1985, when they received the first IRS notice of deficiency. The district court found that Plaintiffs' queries to Childers regarding their concerns about the tax shelters, coupled with his reassurances, constituted sufficient due diligence to avoid a finding that they had actual or constructive notice of their causes of action before the IRS notice arrived. The district court also found that the applicable statutes of limitations were equitably tolled until June 1985, because Childers fraudulently concealed from the Joneses' their right to bring suit against him and TSI.
c. Childers was found to have breached his fiduciary duty to both Gordon and Laura Jones; and their action for breach of fiduciary duty was found to have been filed within the four year statute of limitations governing such actions. Second, Gordon and Laura Jones were found entitled to recover damages for negligent provision of services from Childers individually and, with respect only to Laura Jones, from TSI. Third, the district court concluded that Plaintiffs had prevailed in their common law fraud claim against Childers, individually, and with respect only to Laura Jones, against TSI. The negligence and fraud claims also were found to have been timely filed.
d. TSI was found liable to Gordon Jones for breach of contract, as TSI's breach damaged Jones and his contract claim was timely filed within the five year statute of limitations.
e. Childers and TSI were found to have violated various provisions of Florida's securities laws, Fla.Stat. Sec. 517, by working as unregistered dealers and through the commission of securities fraud in connection with the sale of the Telron securities to the Joneses. 4 With respect to securities fraud 5, Childers and TSI were found to have made the following material misrepresentations in connection with the sale of Telron I and II: (i) Childers' failed to disclose that he received sales commissions from the seller for the Joneses' purchase of the Telron securities; (ii) Childers failed to inform the Joneses of the certain tax liability which would eventually accrue on their investments through future "phantom" income; (iii) Childers misrepresented both the magnitude of risk involved in Telron I and II and the nature of tax audits; and (iv) Childers failed to inform the Joneses that he had lost confidence in Telron I and II after Laura Jones expressed concern regarding the continued viability of the investments. The district court further found that the mere inclusion of risk disclosure information in the private placement memoranda did not relieve Childers and TSI of liability for their misrepresentations. In finding that the Joneses relied justifiably on Childers' representations, the district court emphasized the Plaintiffs' lack of sophistication in investment matters and the influence that Childers wielded as their fiduciary. Additionally, it was found that Childers recognized that the Joneses had no sophistication in financial matters and caused them to reasonably believe...
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