Fábrica De Muebles J.J. Álvarez, Incorporado v. Inversiones Mendoza, Inc.

• Decision Date: 04 June 2012
• Docket Number: No. 11–1985.,11–1985.
• Citation: 682 F.3d 26
• Parties: FÁBRICA DE MUEBLES J.J. ÁLVAREZ, INCORPORADO, Plaintiff, Appellant, v. INVERSIONES MENDOZA, INC.; Frank C. Stipes; Miguel A. Vázquez; XL Specialty Insurance Company; Liberty Mutual Insurance Company; Ace Insurance Co.; William M. Vidal–Carvajal; XL Professional; Liberty International Underwriters, Inc.; Chartis Insurance Corporation of Puerto Rico, Defendants, Appellees, Federal Deposit Insurance Corporation; Banco Popular De Puerto Rico, as Successor in Interest of Westernbank de Puerto Rico; Rosa Vicens, Defendants.
• Court: U.S. Court of Appeals — First Circuit

682 F.3d 26

FÁBRICA DE MUEBLES J.J. ÁLVAREZ, INCORPORADO, Plaintiff, Appellant,

v.INVERSIONES MENDOZA, INC.; Frank C. Stipes; Miguel A. Vázquez; XL Specialty Insurance Company; Liberty Mutual Insurance Company; Ace Insurance Co.; William M. Vidal–Carvajal; XL Professional; Liberty International Underwriters, Inc.; Chartis Insurance Corporation of Puerto Rico, Defendants, Appellees,Federal Deposit Insurance Corporation; Banco Popular De Puerto Rico, as Successor in Interest of Westernbank de Puerto Rico; Rosa Vicens, Defendants.

No. 11–1985.

United States Court of Appeals,First Circuit.

Heard May 7, 2012.

Decided June 4, 2012.

Rafael González Vélez, with whom González Vélez Law Office was on brief, for appellant.

Roberto Busó–Aboy for appellee Miguel A. Vázquez.

Manuel A. Pietrantoni, Casellas Alcover & Burgos, P.S.C., Benjamin C. Eggert, and Wiley Rein LLP on brief for appellee XL Specialty Insurance Company.

Before LYNCH, Chief Judge, BOUDIN and LIPEZ, Circuit Judges.

LYNCH, Chief Judge.

Fábrica de Muebles J.J. Álvarez, Inc. (“Álvarez”) brought suit against a bank whose successor is Banco Popular de Puerto Rico (“BPPR”), under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961–68, as well as under several Puerto Rico law causes of action. The suit alleged that Westernbank, BPPR's predecessor in interest, swept funds from an escrow account held in plaintiff's interest. Plaintiff appeals both from the dismissal of the case followinga partial settlement and from the denial of its two motions for reconsideration. We affirm.

I.

On December 1, 2004, plaintiff Álvarez entered into a written agreement to sell a furniture business, including the real estate and goods, to Inversiones Mendoza, Inc. (“Mendoza”). Westernbank agreed to finance the transaction. At the time of the closing, Westernbank provided funds for a partial payment for the property and obtained a first mortgage to guarantee both the loan and other monies which Mendoza owed to the bank. The unpaid portion of the sale became a deferred payment, and Mendoza signed a mortgage note for $750,000.

Westernbank demanded that the parties submit a written consignment contract to the bank for its approval. In response, plaintiff and Mendoza executed a consignment agreement establishing that all the consigned goods in the hands of Mendoza were, and would remain, the exclusive property of plaintiff, as would the product of the sale of the goods. The product of these sales, together with all sales records and related documents, would be delivered to plaintiff. Plaintiff would then pay Mendoza the corresponding amounts in accordance with the consignment agreement. Plaintiff then deposited consigned goods, with a cost of $1,503,900, with Mendoza. These goods had an expected sales value of more than $6,000,000.

On August 29, 2004, the parties opened what plaintiff alleges was an escrow account at Westernbank under the name of Francisco Mendoza, Inc. d/b/a J.J. Álvarez, Account No. 204013356, for the purpose of depositing the funds generated from the sale of the consigned goods. At the time the account was opened, Mendoza was party to a separate security agreement with Westernbank that allegedly gave Westernbank control over all accounts where Mendoza deposited funds. Plaintiff alleges that Westernbank provided assurances that the escrow account would not be subject to the separate security agreement with Mendoza, and that Westernbank agreed that it would hold and manage said account for the benefit of plaintiff, and make, or allow, regular payments, to plaintiff from said account.

Plaintiff alleges that Westernbank did not honor this agreement. Instead, it alleges, Westernbank daily swept and kept money from the escrow account in partial satisfaction of the debts owed to it by Mendoza. Similarly, plaintiff alleges that approximately $4.5 million generated by the sale of the consigned goods was transferred directly to Westernbank without ever having been deposited into the escrow account. It claims that Westernbank and its employees exercised absolute financial control over Mendoza. Westernbank enjoyed an irrevocable proxy, signed by the main stockholders of Mendoza, which gave Westernbank full power over Mendoza's stockholder and Board of Directors meetings. In order to make any payments, Mendoza would have to justify the expense to Westernbank, which would then make the funds available to Mendoza for use.

This domineering presence allegedly prevented Mendoza from paying to plaintiff the product of the sale of the consigned goods. Plaintiff alleges that the bank permitted Mendoza to make partial payments to plaintiff, but that the bank required Mendoza to make the payments from a separate rotating account rather than use the funds in the escrow account. Mendoza made these payments, amounting to $366,433, using money loaned to it by the bank, further exacerbating its financial troubles. Mendoza, unable to pay its accumulating debts, eventually defaulted on its payments to plaintiff for the deferred portion of the property purchase.

As a result of its debts, Mendoza filed for Chapter 11 bankruptcy. The appeal in this case is not from the bankruptcy proceedings. Plaintiff, as holder of the mortgage note representing the deferred payment, filed its proof of claim in Bankruptcy Court. On September 14, 2007, following Mendoza's bankruptcy petitions, Westernbank filed an interpleader complaint in the Bankruptcy Court, claiming that it had legitimate reasons to fear overlapping liability with respect to the funds which had been deposited in the escrow account. The bank claimed that it did not know who was rightfully entitled to the funds in the escrow account, which at the time of the filing of Mendoza's bankruptcy petition allegedly contained only $241,571.90.

Mendoza entered into two initial settlement agreements. On June 4, 2008, Mendoza agreed to transfer all of its real estate holdings to Westernbank in exchange for release by the bank from all debts owed. On December 9, 2008, plaintiff and Mendoza signed a settlement agreement forgiving Mendoza's unpaid debts. Under the agreement, plaintiff agreed not to collect the outstanding claims it had against Mendoza in exchange for an agreement to lift a stay which would allow plaintiff to collect whatever amounts it could by foreclosing on its mortgage.

II.

On June 19, 2009, plaintiff Álvarez filed a complaint in the U.S. District Court for the District of Puerto Rico against Westernbank and various John Doe employees and insurance companies.¹ The complaint identified five causes of action: (1) “Civil Law Fraud, Breach of Fiduciary Duty, Lender's Liability”; (2) “Violation of R.I.C.O. Act”; (3) “Civil Fraud Under Commonwealth Law”; (4) “Recovery of Funds or Property”; and (5) “Foreclosure of Mortgage.” As to the RICO claims, the plaintiff pled violations under subsections (a), (c), and (d) of 18 U.S.C. § 1962. On September 28, 2009, Westernbank moved to dismiss the complaint for failure to state a claim. The district court partially granted the motion, allowing only the § 1962(c) RICO claim and the remaining state law claims to survive. See Fabrica de Muebles J.J. Alvarez, Inc. v. Westernbank de P.R., No. 09–1558, 2009 WL 4730776, at *5, *9 (D.P.R. Dec. 4, 2009).

On April 30, 2010, the Commissioner of Financial Institutions of Puerto Rico closed Westernbank's banking operations and appointed the Federal Deposit Insurance Corporation (“FDIC”) as its receiver to liquidate Westernbank. On the same date, the FDIC sold most of Westernbank's assets to BPPR. On May 12, 2010, BPPR replaced Westernbank in the present case.

Most significantly, on March 18, 2011, plaintiff agreed at a settlement conference to voluntarily dismiss three of the five causes of action against BPPR: (1) the civil law fraud and breach of fiduciary duty claim, (2) the remaining RICO claim, and (3) the claim of civil fraud under Puerto Rico law. The district court ordered the parties to file, pursuant to the settlement agreement, a stipulation dismissing the three causes of action against BPPR by March 25, 2011. At that point, plaintiff had not identified or served individuals who had been bank officers as defendants.

At the same settlement conference, plaintiff informed the court that it had recently identified insurance companies which had issued policies that would cover the damages in the case. Plaintiff moved to amend the complaint by substituting those companies for the fictitious insurers it had named in the original complaint. In its order granting the motion to amend, the district court explained that it was “reluctant to add new parties at this stage in the case, [but that] plaintiff has shown cause for the delay and the addition of these insurers at this stage may result in the most expedient resolution of a complex matter.” Fábrica de Muebles J.J. Álvarez, Inc. v. Westernbank de P.R., No. 09–1558 (D.P.R. Mar. 18, 2011). The court allowed the plaintiff “until March 25, 2011 to amend the complaint to name the insurers.” Id. Neither the plaintiff's motion nor the district court order made any reference to Westernbank employees.

On March 25, 2011, the plaintiff filed an amended complaint naming not only the insurance companies that it had moved to include in the complaint, but also several new Westernbank employees. On April 4, 2011, BPPR objected to plaintiff's inclusion of the Westernbank employees in contravention of the express language of the district court's order.

On March 28, 2011, after the stipulation deadline had passed, BPPR moved to dismiss the causes of action that the plaintiff had agreed to dismiss. ² BPPR represented that the plaintiff had failed to cooperate or comply with any of its requests to help prepare such a stipulation. The district court granted the motion. Fábrica de Muebles J.J. Álvarez, Inc. v. Westernbank de P.R., No. 09–1558 (D.P.R. Apr. 4, 2011).

On June 28, 2011, the...