Keiser v. Coliseum Properties, Inc.

• Decision Date: 24 March 1980
• Docket Number: No. 77-3417,77-3417
• Citation: 614 F.2d 406
• Parties: Bernard E. KEISER et al., Plaintiffs-Appellants, v. COLISEUM PROPERTIES, INC., et al., Defendants-Appellees. A. Don FLECK, Plaintiff-Appellant, v. AUDITING SERVICES, INC., et al., Defendants-Appellees. H. G. LORTSCHER et al., Plaintiffs-Appellants, v. AUDITING SERVICES, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 406

614 F.2d 406

Bernard E. KEISER et al., Plaintiffs-Appellants, v. COLISEUM PROPERTIES, INC., et al., Defendants-Appellees.

A. Don FLECK, Plaintiff-Appellant, v. AUDITING SERVICES, INC., et al., Defendants-Appellees.

H. G. LORTSCHER et al., Plaintiffs-Appellants, v. AUDITING SERVICES, INC., et al., Defendants-Appellees.

No. 77-3417.

United States Court of Appeals Fifth Circuit.

March 24, 1980.

Richard C. Freeman, III, Harold D. Corlew, Atlanta, Ga., for plaintiffs-appellants.

Paul Y. Hughes, pro se.

Appeal from the United States District Court for the Northern District of Georgia.

Before TUTTLE, FAY and THOMAS A. CLARK, Circuit Judges.

FAY, Circuit Judge:

The sole issue before us is whether the district court erred in granting defendant Paul Y. Hughes' motions for summary judgment in three consolidated cases. Reviewing the records in the three cases, we find several genuine issues of material fact which should have been submitted to a jury. We therefore reverse the entry of summary judgment in each case and remand all three cases to the district court for trial on the merits.

I. The Facts

The plaintiffs in these three actions ¹ purchased utility auditing franchises from defendant Auditing Services, Inc. (ASI), a wholly-owned subsidiary of defendant Coliseum Properties, Inc. (CPI). ASI offered computerized audits of utility expenses to businesses and industries. It sold franchises allowing solicitation of customer accounts in defined territories. Prospective franchisees, including the plaintiffs, were told that utility rates from each franchise territory were programmed into the computer, and that auditing by computer was the major advantage offered by ASI. Businesses audited by ASI were to pay fifty percent of any refunds or utility savings to the franchisee, who then was to share half his profits with ASI.

To aid its franchise sales, ASI used photographs of computer facilities depicting an RCA computer and, later, tours of another facility. Prospective franchisees were furnished with the names and addresses of purportedly successful dealers, including paid "singers" who posed as franchisees and deceived prospective franchise purchasers by representing that they received significant income from their "franchises." ASI received over $650,000 as its share of the fees from sixty-two franchise sales in 1971. Franchisees submitted many auditing contracts, but few recoveries resulted, although ASI had represented that the recovery rate would be very high.

Some of the truth about ASI was revealed in the course of the criminal prosecution of Stanley Spiegel and Allan Holloway. See United States v. Spiegel, 604 F.2d 961 (5th Cir. 1979). Spiegel owned the controlling interest in Coliseum Properties (CPI) and participated in the formation of CPI's subsidiary, ASI. Holloway, through his own corporation, Holloway Enterprises, Inc. (HEI), contracted with CPI to sell franchises for ASI and another CPI subsidiary. ² Both Spiegel and Holloway misrepresented the state of ASI's computer capability. A computer expert told Spiegel in April, 1971 that the rate structure of an entire utility company could not be programmed; analysis had to proceed one business at a time. When advised of this and when told such information would ruin ASI's sales pitch, Spiegel indicated that ASI franchisees need not receive this information. Franchise sales continued despite recommendations that such sales be stopped because of a backlog at the computer. Spiegel further misrepresented to at least one franchisee that ASI had leased three-fourths of the time available on an RCA computer at an annual cost of $500,000. ³

Spiegel and Holloway were each convicted of numerous counts of mail fraud; their convictions were affirmed in United States v. Spiegel, 604 F.2d 961 (5th Cir. 1979). The three civil actions out of which this appeal arises were instituted either prior to or during the pendency of the criminal prosecution. ⁴ Although the three civil cases were commenced at different times, the claims are essentially the same.

The amended complaints in the three cases assert that plaintiffs purchased certain franchises from defendant ASI based upon the fraudulent misrepresentations of various agents of the corporate defendants CPI, ASI, and their affiliates. The individual defendants in the cases directors, officers, and agents of the corporate defendants ⁵ are accused of conspiring to fraudulently represent to the plaintiffs that ASI was a national organization with an established ongoing marketing system and a unique and proven method for auditing utility charges. The defendants allegedly misrepresented that:

(1) ASI had services and materials available to dealers, including a planned, pre-programmed and fully operational computer facility applicable to the offered program;

(2) the ASI computer was being moved;

(3) reorganization was in progress;

(4) a new series of plans was being developed;

(5) a refund program was in progress; and

(6) a resale program and/or a transfer program was in progress.

Record, vol. I, at 125-141.

Plaintiffs further claim that the defendants, including defendant-appellee Hughes, commingled, manipulated and secreted the assets and liabilities of the corporate entities in order to defraud defendants' creditors, including the plaintiffs. The defendants allegedly were aware of the fraudulent scheme and either participated in it or ratified it by their activities. Plaintiffs assert that the defendants covered up the scheme to prevent plaintiffs from abandoning their respective franchises. Because the defendants misled plaintiffs into believing that the corporations and organizations involved were being restructured and refinanced, the plaintiffs attempted to maintain their franchise contacts with businesses, consequently suffering substantial monetary losses as well as injury to their personal and business reputations.

II. The Procedural Path To The Fifth Circuit

The Keiser, Fleck and Lortscher actions were filed in 1972, 1973, and 1974 respectively. The Keiser and Fleck cases were consolidated in May, 1974; in February, 1975 all three cases were consolidated as the Coliseum Properties Cases. Record, vol. III, at 106. The docket sheets in the record indicate that some discovery took place in early 1974; that an order staying the proceedings against defendant CPI was filed in October, 1974; and that in December, 1974 the plaintiffs were directed to file a brief regarding the bankruptcy proceedings of several of the defendants (including CPI) and the need for a stay order. The three plaintiffs filed a memorandum asserting that there should be only one jury trial on the issue of fraud, and that the defendants should not be permitted to have a separate trial of that issue before the bankruptcy court. Record, vol. I, at 57-69. ⁶ In March, 1975 the court issued an order stating its intention that the Coliseum Properties Cases be tried on all issues as to all parties, "despite the fact that some of the parties herein may be in the process of bankruptcy adjudications. . . . Previous stays as to any parties for such reason shall be dissolved." Record, vol. I, at 145.

Discovery in the three consolidated cases continued from December, 1974 through February, 1977. During this period the criminal defendants in United States v. Spiegel were tried and convicted, and their motions for new trial were denied. ⁷

On April 27, 1977, defendant-appellee Paul Y. Hughes submitted a motion for summary judgment in the Fleck and Lortscher cases, along with a statement of "undisputed material facts," a brief, and an affidavit. Record, vol. II, at 78-88; vol. III, at 162-172. Although the Fleck and Lortscher actions had previously been consolidated with the Keiser case, no motion for summary judgment against Keiser was filed at this time. At a pretrial conference on May 6, 1977 the court directed the plaintiffs in the Fleck and Lortscher cases to respond to the motion for summary judgment within ten days. In response to a request for additional time, the court noted that

where you have got a pro se motion in a case that's as complicated as this, that it is going to be one of those that all you have to point out is that there are complicated facts with respect to the matter and, therefore it is not a case for summary judgment. It is hard for me to see, in a case that's been going for seven years on a case with jurisdictional matters, how you are going to have any real basis for a substantive summary judgment.

Record, vol. IV, at 27.

Plaintiffs Fleck and Lortscher submitted their responses to the motion for summary judgment on May 10, 1977. The motion was granted by the court on June 9, 1977; plaintiffs subsequently submitted motions for reconsideration. On June 30, 1977 defendant Hughes filed a response to the Fleck and Lortscher motions for reconsideration. That same day he also filed a motion for summary judgment in the Keiser case, having inadvertently omitted the Keiser action from the caption of his April 27 motion for summary judgment. After further supplementation of the motions and responses by all parties, the court, on August 26, 1977, entered an order denying the Fleck and Lortscher motions to reconsider and granting Hughes' motion for summary judgment in the Keiser case. Record, vol. I, at 313. Thereafter, final judgment was entered in favor of defendant Hughes, the court noting that "the claim against Hughes has been adjudicated by the granting of summary judgment which was based on the finding that Hughes formed no part of the conspiracy of which plaintiff(s) complain." Record, vol. I, at 327. Plaintiffs appeal the grant of Hughes' motion for summary judgment. We reverse.

III. The Law of Summary Judgments

Under Rule 56 a motion for summary judgment shall be granted forthwith "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is...