Maiz v. Virani

• Decision Date: 08 June 2001
• Docket Number: No. 99-14962,99-14962
• Citation: 253 F.3d 641
• Parties: (11th Cir. 2001) Jose MAIZ, Oziel Garza, et al., Plaintiffs-Counter-Defendants-Appellees, v. Amir VIRANI, Atlanta Associates, Inc., et al., Defendants-Counter-Plaintiffs-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 641

253 F.3d 641 (11th Cir. 2001)

Jose MAIZ, Oziel Garza, et al., Plaintiffs-Counter-Defendants-Appellees, v. Amir VIRANI, Atlanta Associates, Inc., et al., Defendants-Counter-Plaintiffs-Appellants.

No. 99-14962.

United States Court of Appeals Eleventh Circuit.

June 8, 2001.

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[Copyrighted Material Omitted] Appeal from the United States District Court for the Northern District of Georgia. (No. 97-01742-CV-TWT-1), Thomas W. Thrash, Judge.

Before ANDERSON, Chief Judge, and MARCUS and KRAVITCH, Circuit Judges.

MARCUS, Circuit Judge:

Defendants Amir Virani, Ignacio Santos, and three companies affiliated with them appeal the district court's entry of an $18 million judgment against them on Plaintiffs' civil RICO claim. Plaintiffs, who are Mexican citizens, allege that Defendants solicited their investment in a Georgia real estate venture, only to defraud them by taking hidden profits on land sales, claiming unauthorized expense reimbursements and commissions on real estate transactions, and using Plaintiffs' contributions to pay for the defense of this lawsuit. A jury returned a verdict in Plaintiffs' favor. On appeal, Defendants raise multiple objections, many but not all of which relate to damages. Notably, Defendants do not argue that there was insufficient evidence to support the liability verdict as a whole, although they do challenge the entitlement of certain Plaintiffs to recover on certain claims. After a thorough review of the record and the parties' arguments, we find no reversible error, and therefore affirm the judgment.

I.

We start by summarizing the key facts of this case and the evidence produced by the Plaintiffs upon which the jury based its verdict. Plaintiffs are 53 residents of Monterrey, Mexico; most of them are members of fourteen family groups. Also plaintiffs in this case (although not participants in this appeal) are six corporations to which the individual Plaintiffs eventually transferred their interests.¹ Defendants include several individuals--Amir Virani, Ignacio Santos, Rodrigo Gonzalez, and Rodrigo Padilla--and several companies--Atlanta Associates, Inc. ("AA"), Signa Development Corp. ("Signa"), Sanvir Development, Inc. ("Sanvir"), Savoy Properties, Inc. ("Savoy"), and Sanig Investments, Ltd. ("Sanig"). Virani and Santos control AA, Signa, and Sanvir.²

This lawsuit arises out of Plaintiffs' participation in transactions orchestrated by Virani and Santos for the ostensible purpose of acquiring, developing, and then re-selling real estate near Atlanta, Georgia. By the late 1980s, AA and Signa began acquiring and assembling six tracts of undeveloped real estate in Georgia. In 1988 and 1989, Plaintiffs become investor-partners in six new Georgia general partnerships meant to develop the tracts. Precisely how Plaintiffs came to be investors was a subject of dispute at trial. Plaintiffs contend that Santos and Virani hired a Monterrey brokerage firm, Abaco Casa de Bolsa ("Abaco"), to assist Defendants in soliciting Mexican partners to invest in the partnerships. There is no dispute that Virani and Santos agreed to pay Abaco a commission equal to five percent of the amount raised from investors, plus an additional 20 percent of the net profits when the partnerships eventually sold the properties. Plaintiffs also allege that Abaco brokers told them that Abaco was representing Santos and Virani.³

In soliciting the Plaintiffs, Abaco presented a brochure describing each partnership. The brochures were prepared by Virani and Santos for distribution by Abaco. Each brochure represented that Defendants would receive no compensation until the investor-partners recovered their investments plus the equivalent of twelve percent interest per year. Various Plaintiffs were brought to Georgia to view the properties and to receive a sales pitch from Virani or Santos; Virani and Santos also met with prospective partners in Monterrey. Among the promises allegedly made in the brochures and marketing meetings, besides the promise of no "up-front" compensation, were that Santos and Virani would be investing their own cash and would be partners in the partnerships, and that the properties being assembled were to be acquired for the partnerships in arms-length transactions involving unrelated third parties.

The six partnerships were ultimately formed in 1989. Partnership interests were awarded based on the partners' individual capital contributions. The six Partnership Agreements, which are virtually identical, named Sanvir as managing partner; Sanvir was also awarded a 1% interest in each partnership. Sanvir, Sanig, and Savoy--all controlled by Virani and Santos--eventually owned 10-20% of each partnership; Virani, Santos, AA, and Signa were never direct partners in any of the partnerships (notwithstanding Virani's and Santos's promise that they would be partners). Sanvir signed a Management Agreement with AA whereby AA would perform the duties of the managing partner in exchange for the profits due to Sanvir under the Partnership Agreements; the Management Agreements are virtually identical for each partnership.

Between March 1988 and December 1989, the investing partners contributed $16.9 million toward the six partnerships; of that, $6,738,950 came from the Plaintiffs. Over time, Plaintiffs contributed an additional $3,248,406, bringing their total contribution to just under $10 million. In some instances, Abaco advanced the funds necessary to meet capital calls to investors; some, but not all, of those advances were repaid.

Plaintiffs allege four distinct types of wrongdoing by the Defendants in connection with these ventures. The first type of misconduct (the "land price fraud") relates to the partnerships' early days in 1988-89; the other three types of misconduct extended into the 1990s, although the bulk of the harm was inflicted early in that decade.

The land price fraud relates to how the advertised tracts of land came into the ownership of the partnerships. According to Plaintiffs, the partnerships did not acquire the relevant properties in arms-length transactions from unrelated third parties. Instead, Santos and Virani would use investor funds to take title to each property in the name of one of their companies (AA or Signa), and then transfer the property to the appropriate partnership at a different and inflated price (up to three times what Santos and Virani actually paid). The inflated prices were reported to the investors as the cost of the properties, with no disclosure of the initial transactions. Plaintiffs' expert put the total unauthorized profit to Defendants from these transactions at approximately $10 million. In addition to that alleged wrongdoing Santos's and Virani's companies had promised to contribute $2.4 million of their own money as a share of the partnerships' initial capital, but in fact contributed only $144,600, to just one of the six partnerships.

Plaintiffs alleged that Defendants took elaborate steps to conceal their land price fraud, altering the partnerships' books and records and distributing false status reports. Plaintiffs also alleged that Defendants used the mail and the telephone wires in furtherance of the fraud, and also engaged in money laundering to conceal their so-called "secret profits." Among other things, Defendants allegedly wrote bogus receipts with the assistance of Padilla and Gonzalez suggesting that companies affiliated with Defendants had performed services for the partnerships, when in fact no such services had been performed.

The second type of fraud allegedly perpetrated by Defendants related to their taking of "reimbursement" payments for actual and made-up expenses relating to the operation of the partnerships. Among other things, partnership funds were allocated to Defendants under the guise of "general overhead" as well as salary to Virani. Plaintiffs claim that these payments were concealed from them, and violated the relevant agreements.

The third type of alleged fraud concerned the Defendants' taking as "brokerage commissions" approximately 10% of the income received from the partnerships' eventual property sales. These commissions were generally described on the partnerships' records as going to a real estate broker named Peggy Weiss; Weiss, however, never received the checks, which were instead endorsed by Virani and deposited in Defendants' bank accounts. Virani allegedly paid Weiss $750 per month to use her name on the commission checks. These arrangements were neither authorized nor disclosed, according to Plaintiffs. All told, Virani paid himself and AA $1.2 million in commissions.

Finally, the fourth type of fraud concerned the Defendants' use of partnership funds to pay for fees and costs relating to this lawsuit, which began in June 1997. Defendants used partnership funds to cover their own expenses as well as the fees of counsel. This practice was disclosed only during a deposition midway through the lawsuit. Plaintiffs say that they never consented to such a use of their contributions, and that Defendants have never returned any of the money siphoned off for use in this litigation. Defendants apparently claimed reliance on several opinions of counsel to the effect that they did not need to seek the consent of the partners, and that they had at least the potential of indemnification if they ultimately prevailed in the case.

At trial, Plaintiffs' damages expert, Dr. Stephen Silberman, calculated the total amount lost by the Plaintiffs individually and collectively for each of the four types of fraud. Total "out-of-pocket" losses were put at approximately $4.3 million for the land fraud (reflecting the money that should have remained with the partnerships if the land had been purchased at arms-length prices); $1...