943 F.2d 1363 (4th Cir. 1991), 90-1523, Brubaker v. City of Richmond

Docket Nº:90-1523.
Citation:943 F.2d 1363
Party Name:Malvin W. BRUBAKER, Appellant, Richmond Financial Holding Company, Incorporated; Richmond Financial Corporation; Richmond Financial Advisory, Incorporated, Plaintiffs-Appellants, v. CITY OF RICHMOND; Claudette B. McDaniel; Alfred E. Smith; Vernon F. Williams, Jr., Defendants-Appellees, and Thomas E. Carter; United Daniels Securities, Incorporated,
Case Date:August 08, 1991
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

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943 F.2d 1363 (4th Cir. 1991)

Malvin W. BRUBAKER, Appellant,

Richmond Financial Holding Company, Incorporated; Richmond

Financial Corporation; Richmond Financial

Advisory, Incorporated, Plaintiffs-Appellants,


CITY OF RICHMOND; Claudette B. McDaniel; Alfred E. Smith;

Vernon F. Williams, Jr., Defendants-Appellees,


Thomas E. Carter; United Daniels Securities, Incorporated,


No. 90-1523.

United States Court of Appeals, Fourth Circuit

August 8, 1991

Argued March 7, 1991.

As Amended Aug. 23, 1991.

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[Copyrighted Material Omitted]

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Gary C. Leedes, University of Richmond Law School, Richmond, Va., argued (Thomas H. Roberts, Roberts & Landry, P.C., on brief), for plaintiffs-appellants.

Beverly Agee Burton, Asst. City Atty., Richmond, Va., argued (G. Timothy Oksman, City Attorney's Office, James Edward

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Sheffield, James E. Sheffield & Associates, P.C., on brief), for defendants-appellees.

Before RUSSELL and HALL, Circuit Judges, and HILL, Senior Circuit Judge of the United States Court of Appeals for the Eleventh Circuit, sitting by designation.


HILL, Senior Circuit Judge:

This case concerns the propriety of Rule 11 sanctions awarded to the defendants named in a sprawling 67-page complaint containing 294 numbered paragraphs and 204 pages of exhibits. Although the nearly incomprehensible, four-count complaint was inordinately lengthy and confusing, plaintiffs' grievance can be stated rather simply: plaintiffs (investment services firms) alleged that defendants, in the course of furthering their political and financial objectives, had schemed to deprive plaintiffs of Minority Business Enterprise certification and has prevented them from receiving business from city-related investment projects. After being vindicated on all counts, five of the six defendants brought motions for Rule 11 sanctions against plaintiffs. The district court granted these motions, sanctioning plaintiffs and their trial counsel. On appeal (with appellate counsel representing plaintiffs and their trial counsel), the sole issue is whether the Rule 11 sanctions were appropriate. It is at this point that we begin our foray into this maze.


The leading characters consist of three plaintiffs, their trial attorney, and six defendants. The plaintiffs are Richmond Financial Holding Company, Inc. ("RFHC") and its wholly owned subsidiaries, Richmond Financial Corporation ("RFC") and Richmond Financial Advisory, Inc. ("RFA"). RFC is a New York broker/dealer of securities registered to do business in Virginia, while RFA is a Virginia corporation engaged in the business of providing investment advice. The plaintiffs' trial attorney is Malvin W. Brubaker, of Richmond, Virginia, who took and passed the Virginia state bar examination in 1987. The defendants are: the City of Richmond, Virginia ("the City"); Claudette B. McDaniel, a member of the Richmond City Council and the chairperson of the council's liaison committee with the Richmond Human Relations Commission ("HRC"); Alfred E. Smith, the executive director of the HRC; Vernon F. Williams, Jr., a compliance specialist with the HRC; Thomas E. "Tony" Carter, a former stockholder, director and president of RFHC; and United Daniels Securities, Inc. ("United Daniels"), a New York corporation. What follows is a summary of many of the allegations contained in the plaintiffs' complaint.

Initial allegations include a description of the personal connections between certain of the characters. McDaniel and Carter were allegedly close friends, and Carter managed McDaniel's re-election campaign in 1986. Carter and McDaniel also had a relationship with United Daniels through Willie Daniels of that firm, who is said to have made a contribution to McDaniel's campaign.

Plaintiffs' yarn goes on to explain the formation of RFHC. In early 1985, McDaniel approached Nick Skaltsounis of Anderson & Strudwick, a Richmond brokerage firm, about the possibility of forming a minority investment services firm in Richmond. Carter was also an employee at Anderson & Strudwick at that time. RFHC was incorporated in June, 1985, with Carter as its director. Among those solicited to invest in RFHC was Alfred Smith, who received a Private Placement Memorandum that was later withdrawn by Carter.

In August, 1985, the Richmond Supplemental Retirement System ("RSRS") issued a request for proposals to manage certain assets it held. A number of firms submitted bids and indicated that they would, in varying degrees, utilize firms certified by the City as Minority Business Enterprises ("MBE"). 1 McDaniel informed

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Carter about the RSRS contract and encouraged him to seek MBE certification for RFHC. RFHC did not, however, have 51% minority ownership; Carter was the only minority owner and held only a small percentage of the shares. 2 Prior to applying for MBE certification, Carter altered his stock certificate and the minutes of an RFHC board meeting to indicate that he owned a majority of the outstanding shares. Carter then applied for MBE certification for RFHC. After correspondence back and forth with Vernon Williams, Williams sent Carter a letter refusing to certify RFHC. Carter then appealed to Alfred Smith, who certified RFHC shortly thereafter.

Carter was not with RFHC long. In June of 1986, Nick Skaltsounis and Paula Collier, the Secretary and Treasurer of RFHC, respectively, discovered that Carter had made false statements on his application for employment as a broker with a brokerage firm, and Carter resigned from RFHC at their request. Skaltsounis also requested that Carter return his stock certificates; McDaniel was the person who actually returned them. After Carter's resignation, Skaltsounis and Collier hired Colston Lewis, Jr., a minority, as the new president of RFHC and set out to attract minority investors in order to reach the 51% minority ownership level. Also subsequent to Carter's resignation, RFHC acquired its two wholly-owned subsidiaries, RFA and RFC. In March, 1987, RFHC achieved 51% minority ownership.

RFHC reapplied for MBE certification in April, 1987, and sought participation as an MBE in a contract to manage the RSRS funds. In late May, Vernon Williams notified RFHC by letter that it would not be certified as an MBE because the composition of its board of directors (two minorities and two non-minorities), together with its quorum rules (a majority of the board constituted a quorum), permitted control of RFHC by non-minorities. The decision not to certify RFHC affected RFA's chances for participation in the RSRS contract.

In late June, RFHC appealed the non-certification decision. Alfred Smith sent a letter to RFHC's attorney (not its trial counsel) in early September stating that RFHC had attained MBE status. RFHC assumed that its subsidiaries were included in the certification.

Tobacco Row Associates, a development group that planned to convert abandoned warehouses in Richmond into housing and commercial space, had an agreement with the City to use minority firms for at least 20 percent of its bond underwriting and sales. In late August, Mr. Lewis sent a letter to Tobacco Row's managing general partner expressing RFHC's interest in participating in the project through its broker/dealer subsidiary RFC. In November, Mr. Lewis discovered that, despite RFHC's certification, RFHC was not on a list of certified MBE's provided to the general partner by the HRC. The list was in the form of a memorandum dated October 15, 1987, from Vernon Williams to Claudette McDaniel, with a copy to Alfred Smith, that listed 10 certified MBEs. None of these people notified Tobacco Row's managing partner that RFHC had been omitted from the list. By the time Lewis notified the general partner that RFHC was certified, Tobacco Row had already met part of its 20% commitment by including two firms listed in the October memorandum. One of the firms, United Daniels, was not registered with the State Corporation Commission to transact business in Virginia. RFHC's former president, Carter, had become affiliated with United Daniels by this time. Lewis continued to try to get some of the business from Tobacco Row and was told by the general partner that someone in the City had informed him that RFHC's

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broker/dealer subsidiary had to be certified before its involvement could be counted toward the 20% minority participation goal. RFC applied for certification in February, 1988, and was granted certification that month. After certification, RFC received only 5% of the 20% minority participation.

On September 21, 1988, the Richmond News Leader reported that the Federal Bureau of Investigation was investigating three issues involving Claudette McDaniel, one of which was the MBE certification of RFHC. In that article, Alfred Smith stated that his office had reservations about RFHC, under both Carter and Lewis, because it showed signs of being a "front." RFHC and RFC have had virtually no business since the article and other follow-up articles were published.

Having extracted the above sad story of plaintiffs' frustration from the voluminous filing in the nature of a complaint, one finally reaches the counts of the complaint. In their first count, plaintiffs alleged that all defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68 (1988). More specifically, plaintiffs alleged that defendants violated section 1962(c) by conducting or participating in the conduct of the affairs of certain enterprises (including RFHC and United Daniels) through a pattern of racketeering activity. Plaintiffs also contended that defendants violated section 1962(d) by conspiring to violate section 1962(c). 3


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