Arabian American Oil Co. v. Scarfone

• Decision Date: 30 August 1991
• Docket Number: No. 90-3279,90-3279
• Citation: 939 F.2d 1472
• Parties: , RICO Bus.Disp.Guide 7824 ARABIAN AMERICAN OIL COMPANY, a Delaware Corporation, Plaintiff-Counter-Defendant, Appellee, v. Lee Letterio SCARFONE, individually, Architect Lee Scarfone Associates, Defendants-Counter-Plaintiffs, Appellants, Robert Work, Jerry Konidaris, Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1472

939 F.2d 1472

23 Fed.R.Serv.3d 659, RICO Bus.Disp.Guide 7824

ARABIAN AMERICAN OIL COMPANY, a Delaware Corporation Plaintiff-Counter-Defendant, Appellee, v. Lee Letterio SCARFONE, individually, Architect Lee Scarfone Associates, Defendants-Counter-Plaintiffs, Appellants Robert Work, Jerry Konidaris, Defendants.

No. 90-3279.

United States Court of Appeals Eleventh Circuit.

Aug. 30, 1991.

Edna L. Caruso, Philip Burlington, West Palm Beach, Fla., for defendants-counter-plaintiffs-appellants.

Holland & Knight, Steven L. Brannock, Tampa, Fla., for plaintiff-counter-defendant-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before TJOFLAT, Chief Judge, BIRCH, Circuit Judge, and HILL, Senior Circuit Judge.

PER CURIAM:

This case stems from alleged fraud in the performance of services contracts in Saudi Arabia. The Arabian American Oil Company ("Aramco") sued Lee Scarfone and his proprietorship, Architect Lee Scarfone Associates, alleging breach of contract, fraud, violations of federal and Florida racketeering statutes, and violation of the Florida civil theft statute. ¹ Scarfone counterclaimed against Aramco, alleging violations of federal and Florida racketeering statutes, malicious extortion, and breach of contract. The jury found in favor of Aramco on all claims, and against Scarfone on his counterclaims. Scarfone appeals the denial of certain discovery requests, the denial of his motion for a continuance despite the discharge of his attorney, the post-judgment ratification of the verdict by the Kingdom of Saudi Arabia (the "Kingdom"), and Aramco's employment of other claims besides the contract claim. We affirm.

I. FACTUAL & PROCEDURAL HISTORY

Aramco is a Delaware corporation principally based in Dhahran, Saudi Arabia. The company was formed in the 1930's by a consortium of American oil companies to acquire oil and gas concessions from the Kingdom. In the early 1980's, Saudi Arabia acquired beneficial ownership of most of Aramco's rights, assets, and facilities. Aramco retains legal title to the assets relating to the exploration, mining, and production of oil, and is charged with managing those assets for the benefit of the Kingdom. Aramco receives a fee for this service.

In the 1970's, the Kingdom began an effort at industrialization and modernization, using Aramco as the principal instrument to carry out those plans. Aramco's duties included overseeing the development and construction of roads, housing, schools, hospitals, and entire townships. Aramco qualified the designers and contractors, entertained bids, assigned projects, and supervised construction. Aramco also paid the contractors, but was reimbursed by the Kingdom.

Pursuant to Aramco's standard procedure, Aramco and Scarfone entered into a series of annual "blanket" agreements for architectural services. These agreements did not award work on specific projects, but covered such areas as dispute resolution, compensation, work standards, and payment procedures. Separate cost-plus contracts were signed awarding work on the specific projects. These contracts required Scarfone to account for the actual time and actual employees working on a specific project, so that Scarfone would be compensated for the expenses associated with employing each individual plus be guaranteed a profit. After finishing work on a project, Scarfone would submit an invoice package to Aramco. Each package would contain a roster of Scarfone's employees, listing each employee's nationality ² and job classification. The package would also contain signed timesheets for each employee showing the number of hours worked on each project. Scarfone worked on more than 60 projects from 1978 to 1983, for which Aramco paid Scarfone over $12 million. The Kingdom reimbursed Aramco for all of the payments made to Scarfone.

This lawsuit arose because Aramco believed that Scarfone had overcharged it by billing for time not spent, billing foreign workers at higher nationality rates, and billing for nonexistent employees. Aramco sued Scarfone for breach of contract, fraud, civil theft, ³ and violations of the Florida and federal Racketeer Influenced and Corrupt Organizations ("RICO") acts. ⁴ The district court found the evidence of this scheme "overwhelming," observing: "There was direct evidence by former [Scarfone] employees about fraudulent billing, a plethora of documents showing discrepancies between the employees' actual weekly time sheets and the monthly summations forwarded by [Scarfone] to Aramco as part of its invoices, as well as eyewitnesses to Scarfone's forging of documents." R12-339-3.

During discovery, Scarfone sought certain documents relating to the relationship between Aramco and the Kingdom. ⁵ Scarfone had two bases for requesting these documents: (1) the Saudi Arabian government had taken over complete control of Aramco's operation and thus was the real party in interest; and (2) the documents were relevant to Aramco's claims that Scarfone's designs were substandard. R5-115-11. After Aramco amended its complaint to delete the allegations of substandard design, Scarfone argued that the documents were still necessary to establish that Aramco was not damaged. R6-128-7. The Magistrate concluded:

Because the Plaintiff has now dropped its substandard design claim the only potential relevance of materials reflecting the Plaintiff's relationship with the Saudi Arabian Government would be concerning the Defendants' claim that the Plaintiff is not the real party in interest in this case. This argument was rejected.

R8-175-1-2. Because the relationship between Aramco and the Kingdom had "no relevance to any issue in this law suit," the magistrate denied the motion to compel as to request numbers 6, 7, 60, and 61. ⁶ Id. at 2.

Prior to trial, Scarfone had several lawyers, each of whom began representation after the preceding one withdrew. On the eve of the April, 1988, summary jury trial, ⁷ Scarfone's latest attorney, Patrick Mirk, filed a motion to withdraw. The district judge refused to grant the motion, and Mr. Mirk served as counsel during that trial. Shortly after the summary jury trial, Mr. Mirk filed a renewed motion for leave to withdraw, and a motion to stay proceedings in the case was also filed. On June 2, the district judge denied the motion to withdraw and the motion to stay the proceedings, stating in part:

Defendant Scarfone has had four different counsel of record, Mr. Mirk being the last attorney to file a notice of appearance. On previous occasions motions to withdraw as counsel have been filed on the eve of taking depositions, in an apparent attempt to delay proceedings in this cause.

. . . . .

The Court finds it would be an unconscionable delay in the progress of this case to grant the motion for stay of proceedings.

Arabian Am. Oil Co. v. Scarfone, 685 F.Supp. 1220, 1221 (M.D.Fla.1988).

In late June, 1988, Mr. Mirk again filed a motion for leave to withdraw. Although indicating at a hearing that he was inclined to deny the motion, the trial judge (who entered the case at this point to sit by designation) entered a written order two days prior to trial granting Mr. Mirk's motion to withdraw. The trial judge also denied Scarfone's motion for a continuance. According to the judge:

Scarfone has not paid [Mirk] accrued fees as agreed upon by him; he has refused to cooperate with or assist said counsel in responding to discovery requests by other parties; Scarfone has refused to advance funds for the taking of necessary discovery; and, finally, Scarfone has stated, and the Court finds, that he does not want Mirk to represent him further....

Accordingly, the Court finds that it would be unconscionable to deny Mirk's motion and that a failure to grant the same would amount to involuntary servitude....

The Court finds further that Scarfone has other staff counsel who are in a position to represent him in the trial presently scheduled and that any prejudice to him is of his own making. Accordingly, for this and the reasons previously stated, the motion by Scarfone for a continuance is DENIED.

R11-312-1-2. In disposing of post-trial motions, the trial judge further elaborated on his reasons for granting Mirk's motion and denying the continuance: "Mirk's motion was granted and Scarfone's motion for a continuance was denied, due in part to the Court's determination that Scarfone's dispute with his attorney was yet another tactic by Scarfone to delay the trial of the action. Supporting this belief was the inconsistency between Scarfone's offer to settle the case for $500,000 in cash juxtaposed against his failure to pay his attorney and finance pretrial investigation due to alleged insolvency." R12-339-5.

On the eve of trial, Scarfone filed a petition in bankruptcy. The bankruptcy judge, however, granted Aramco relief from the automatic stay provisions of 11 U.S.C. Sec. 362 (1988) to proceed with the trial. At the close of trial, the jury was instructed, among other things:

In this case, ARAMCO contends that it is an agent and fiduciary of the Kingdom of Saudi Arabia, for whom ARAMCO issued various building contracts. If you find that such a relationship existed, and the Kingdom of Saudi Arabia or ARAMCO suffered damages because of the actions of Mr. Scarfone, then ARAMCO would be entitled to recover such damages.

R20-169. The jury returned a verdict in favor of Aramco on all of its claims and against Scarfone on all of his counterclaims. On each claim, the jury found Aramco's damages to be $3,677,885. R11-323. The district judge trebled the damages. ⁸

Scarfone filed a motion for a judgment notwithstanding the verdict, which the district court granted as to Aramco's statutory claims. The court determined that under the federal and Florida RICO statutes, as well as the Florida civil theft statute, only the "person injured" could recover treble damages, and Aramco thus could not recover under those...