Fireman's Fund Ins. Co. v. Lynn Boyd Stites

• Decision Date: 08 June 2001
• Docket Number: No. 99-56622,PLAINTIFFS-APPELLEE,DEFENDANT-APPELLANT,RICHARD,99-56622
• Citation: 258 F.3d 1016
• Parties: (9th Cir. 2001) FIREMAN'S FUND INSURANCE COMPANY; ALLSTATE INS. CO.,BANKS, ET AL., DEFENDANTS, v. LYNN BOYD STITES,
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1016

258 F.3d 1016 (9th Cir. 2001)

FIREMAN'S FUND INSURANCE COMPANY; ALLSTATE INS. CO., PLAINTIFFS-APPELLEES, RICHARD BANKS, ET AL., DEFENDANTS, v. LYNN BOYD STITES, DEFENDANT-APPELLANT.

No. 99-56622

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted June 8, 2001--Pasadena, California

Filed August 3, 2001

[Copyrighted Material Omitted]

Counsel Lawrence F. Schoelch (Briefed and Argued), Law Offices of Lawrence F. Schoelch, Encino, California, for the defendant-appellant.

Ron H. Burnovski (Briefed), Robins, Kaplan, Miller & Ciresi, Los Angeles, California, for appellee Allstate Insurance Company.

Richard P. Edwards (Briefed), Mower, Koeller, Nebeker, Carlson & Haluck, San Diego, California, for appellee Fireman's Fund Insurance Company.

Curtis L. Metzgar (Briefed), Even, Crandall, Wade, Lowe & Gates, Rancho Cucamonga, California, for appellee State Farm Fire and Casualty Company.

Andrew G. Dulaney (Argued), Antioch, California, for the appellees.

Appeal from the United States District Court for the Southern District of California Jeffrey T. Miller, District Judge, Presiding D.C. No. CV-90-00389-JTM (AJB)

Before: Arthur L. Alarcon, Stephen S. Trott, and William A. Fletcher, Circuit Judges.

Opinion by Judge Trott

In this appeal, we must explain how the criminal and civil provisions of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO") interact, and decide under what circumstances a civil RICO plaintiff may collaterally estop a defendant from contesting the facts proven against him in a previous criminal trial. We conclude that under the specific facts of this case, an individual who has been convicted of criminal RICO violations may be held civilly liable for damages flowing from the fraudulent scheme he masterminded, even where some of those damages represent money extracted by co-defendants who were acquitted at their own criminal trials.

BACKGROUND

The plaintiffs in this case are Allstate Insurance Company, Fireman's Fund Insurance Company, and State Farm Fire and Casualty Company (collectively "the Insurers"). Defendant Lynn Boyd Stites is a former attorney who has been convicted of a criminal RICO violation and numerous counts of mail fraud for his role in an organization that defrauded the plaintiffs and other insurance companies out of millions of dollars by controlling both sides of several major lawsuits in order to inflate legal fees. See United States v. Stites , 56 F.3d 1020, 1022 (9th Cir. 1995) (affirming Stites's convictions). The Insurers sued Stites under 18 U.S.C. §§ 1964, RICO's provision for civil lawsuits.

Stites's scheme to "churn" litigation exploited California case law holding that insurance companies with a duty to defend their insureds must sometimes allow those insureds to select their own attorneys. See, e.g., San Diego Navy Fed. Credit Union v. Cumis Ins. Soc'y Inc., 208 Cal.Rptr 494 (Cal. Ct. App. 1984). Stites controlled a network of lawyers that was able to infiltrate both sides of several major lawsuits. Lawyers who were members of this so-called "Alliance" would ensure that plaintiffs would not settle until late in the litigation, thus enabling defense lawyers to accumulate substantial attorneys' fees. Through this process, as well as through the use of kickbacks, Stites and other members of the Alliance extracted millions of dollars from the insurance companies who had to pay the defense bills and settlements. See Stites, 56 F.3d at 1022.

Although Stites and many members of his "Alliance " were convicted of RICO violations and various predicate acts of mail fraud, several lawyers were acquitted of all charges. Among those acquitted were Douglas Caiafa and George Dezes. Another alleged member of the Alliance, Alan Arnold, was indicted but died before his trial.

After Stites's criminal convictions became final, the Insurers sought summary judgment in their civil cases against him on the ground that Stites was collaterally estopped from challenging any issue regarding his involvement in the RICO scheme. The district court agreed, and granted partial summary judgment based on collateral estoppel. The court noted that, except as to the issues of causation and damages, the elements of criminal and civil RICO were the same, but held that the Insurers had submitted inadequate documentation of their damages. The Insurers then submitted a second summary judgment motion. The court determined that the Insurers had cured the problems with the documentation of their damages, and granted summary judgment for over twenty million dollars.

In his response to the Insurers' second summary judgment motion, Stites argued that he could not be held liable for the fees paid to attorneys who had not been convicted of RICO charges, because the Insurers had not proved that those attorneys were members of the Alliance. Because this response was filed late, the district judge initially refused to consider it. Four months after the judgment had been entered, however, the Insurers requested that the district court consider Stites's belated response. The district court did so, and modified the judgment under Rule 60(b) of the Federal Rules of Civil Procedure.

In granting partial relief from the judgment, the district court assumed that the Insurers could not recover fees paid to lawyers who were not members of the Alliance. The district court then subtracted from the judgment sums attributable to the fees of attorneys whom the Insurers had not proved were connected to the Alliance. However, the court also concluded that the Insurers had submitted conclusive evidence linking the acquitted RICO defendants, Dezes and Caiafa, to the Alliance. The district judge then modified the judgment to reflect the reduced amount of damages. Stites appeals from that judgment.

DISCUSSION

A. Standard of Review

Although the order from which Stites appeals is an order modifying the judgment pursuant to Rule 60(b), in considering Stites's belated response to the Insurers' motion for summary judgment, the district judge considered afresh his earlier decision to grant summary judgment in favor of the Insurers. Therefore, our de novo standard of review for a district court's summary judgment decisions governs. See Balint v. Carson City, 180 F.3d 1047, 1050 (9th Cir. 1999) (en banc). The availability of collateral estoppel is an issue of law that we review de novo. See, e.g., Hydranautics v. Filmtec Corp., 204 F.3d 880, 885 (9th Cir. 2000).

B. Collateral Estoppel

1. Collateral Estoppel is Available to the Insurers

We must first address the threshold question that Stites raised in his reply brief--whether a party other than the United States may take advantage of offensive collateral estoppel in a civil RICO case. We answer this question affirmatively.

Title 18 U.S.C. §§ 1964(d) provides that: "[a] final judgment or decree rendered in favor of the United States in any criminal [RICO] proceeding . . . shall estop the defendant from denying the essential allegations of the criminal offense in any subsequent civil proceeding brought by the United States." (emphasis added). Stites argues that because the statute does not explicitly state that offensive collateral estoppel is available to private citizens, it necessarily implies that such parties cannot use it. We reject his contention.

While the issue is one of first impression in the Ninth Circuit, several district courts have addressed, and rejected, identical arguments. See County of Cook v. Lynch, 560 F.Supp. 136, 138-40 (N.D. Ill. 1982); Anderson v. Janovich, 543 F.Supp 1124, 1128-40 (W.D. Wash. 1982); State Farm Fire and Casualty Co. v. Estate of Caton, 540 F.Supp. 673, 682 (N.D. Ind. 1982), overruled on other grounds, Ashland Oil, Inc. v. Arnett, 656 F.Supp. 950, 953 (N.D. Ind. 1987). The district court in Anderson observed that:"[c]ollateral estoppel is without a doubt a civil remedy of historical standing. . . . [T]he abrogation of a traditional remedy such as collateral estoppel requires a clearer expression that mere silence." Anderson, 543 F.Supp. at 1128-29. In addition, when RICO was enacted in 1970, federal common law did not allow for offensive non-mutual collateral estoppel. See County of Cook, 560 F.Supp. at 139. Such estoppel was only authorized in 1979, when the Supreme Court decided Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979). The court in Cook observed that it was unlikely that Congress intended "to deny a remedy against RICO violators which the federal common law, as it has developed since RICO's enactment, would otherwise provide." Cook, 560 F.Supp. at 139.

We find these cases persuasive, and adopt their reasoning. We doubt that Congress intended affirmatively to deny offensive non-mutual collateral estoppel to private plaintiffs seeking to recover losses caused by RICO enterprises. The most likely explanation for the lack of an explicit statement permitting private parties to use such estoppel is simply that it was unavailable when RICO was enacted. We conclude that the Insurers may take advantage of offensive non-mutual collateral estoppel in making their case against Stites.

2. Collateral Estoppel and RICO Generally

We now examine whether the district court properly applied collateral estoppel to preclude Stites from relitigating issues that had been decided against him in his criminal trial. We conclude that it did.

As the district court noted, there are four elements in a criminal RICO case. To obtain a conviction, the government must prove that the defendant engaged in: 1) conduct 2) of an enterprise 3) through a pattern 4) of racketeering activity. See 18 U.S.C. 1962; Sun Savings and Loan Ass'n v. Dierdorff, 825 F.2d 187, 191 (9th Cir. 1987). To prevail on a civil RICO claim, a plaintiff must prove all of these elements, and, in addition, show that the defendant caused injury to his business or property. 18 U.S.C. §§ 1964(c). This fifth element includes...