Fredeman Litigation, In re, 87-2994
| Decision Date | 15 April 1988 |
| Docket Number | No. 87-2994,87-2994 |
| Citation | 843 F.2d 821 |
| Parties | , 1988-1 Trade Cases 68,000, RICO Bus.Disp.Guide 6930 In re FREDEMAN LITIGATION. DIXIE CARRIERS, INC., et al., Plaintiffs-Appellees, v. CHANNEL FUELING SERVICE, INC., et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Alan S. Dale, Frank J. Gonynor, Eastham, Watson, Dale & Forney, Herbert T. Schwartz, Houston, Tex., for plaintiffs-appellees.
Ned Johnson, Gary M. Braugh, Benckenstein, Oxford, Radford & Johnson, Beaumont, Tex., for intervenor Dow Chemical Co., et al.
Maurice C. Hebert, Jr., Alan G. Brackett, New Orleans, La., for Alter Barge Lines.
Michael K. Clann, Lizbeth Caudle, Clann, Bell & Murphy, Houston, Tex., for Crowley Maritime Corp.
Ronald S. Liebman, Mitchell R. Berger, Jean V. MacHarg, Patton, Boggs & Blow, Washington, D.C., for defendants-appellants.
Appeal from the United States District Court for the Eastern District of Texas.
Before RUBIN, KING, and WILLIAMS, Circuit Judges.
In these consolidated civil RICO actions for treble damages, the district court entered a preliminary injunction prohibiting the defendants from transferring or removing virtually any of their assets without the court's express approval and the plaintiffs' knowledge. The disposition of these assets was not an issue in the underlying lawsuit, but the district court premised the injunction on "its inherent power to protect--through equity--the future utility of a potential judgment for damages." Because the district court lacked power to enter such an injunction under general equitable principles, the RICO statute, or the plaintiffs' pendent state-law claims, we vacate the preliminary injunction.
The defendants in these consolidated cases are corporations, and their current or former officers, involved in different facets of the marine industry, including barge towing, shipbuilding and repair, and vessel refueling. The corporate defendants include Port Arthur Towing Company (PATCO) and its wholly-owned subsidiaries, Channel Fueling Service, Inc., and Fredeman Shipyard, Inc. The individual defendants include, among others, William F. Fredeman, Jr., and Henry F. Fredeman, II, brothers who controlled and managed the companies. Some of the plaintiffs and intervenors, current or former customers of the defendants in the shipbuilding and repair or refueling businesses, allege that over a period of several years the defendants systematically charged them for more fuel than was actually delivered. Others, competitors of the defendants in the towing business, allege antitrust violations.
Before the plaintiffs brought these civil actions, the United States had instituted criminal charges against the Fredeman brothers 1 under the Racketeer Influenced and Corrupt Organizations Act ("RICO") 2 and other statutes. Pursuant to the criminal provisions of RICO, 3 the government in April 1986 obtained a court order restraining the defendants from disposing of the bulk of their assets during the pendency of the litigation. In those proceedings, which continued into May 1987, each defendant involved here was either dismissed by the court or acquitted by a hung jury on the RICO counts; however, three of the defendants pled guilty to non-RICO offenses based on different facts.
The first of these civil actions was brought in September 1986. In it and the other actions, the plaintiffs sought treble damages, attorney's fees, and costs under the civil provisions of RICO 4 and damages under federal antitrust and pendent state-law claims. Other customers and competitors of the defendant companies intervened seeking similar relief.
While the civil actions proceeded through pretrial stages, the restraining order that the government had obtained remained in effect. On May 4, 1987, however, this order was vacated with the government's consent. The next day, the plaintiffs in the civil actions obtained a temporary restraining order from the district court that effectively reinstated the freeze on virtually all of the defendants' assets. The defendants then moved to dissolve the TRO, and the plaintiffs sought a preliminary injunction of the same character as the TRO, basing their request on Federal Rule of Civil Procedure 65. In response, the district court held a hearing at which it took testimony from former officers and other employees of the defendant companies. The court also had before it allegations from the Fredeman brothers' sister, Syndalise Fredeman Crawford, who sought to intervene in the action, and a copy of guilty-plea agreements that the Fredeman brothers had signed in the criminal proceedings. Later, Judge Howell Cobb, who had presided at the hearing, recused himself, and the case was transferred to another district judge. 669 F.Supp. 150.
Based on the record adduced at the hearing, the district court entered a preliminary injunction on August 7, 1987, enjoining the defendants "from selling, assigning, encumbering, transferring, or removing from the jurisdiction of this court any of such ... defendants' interests in the [enumerated] assets without the express approval of this court, and without knowledge of such action being communicated to the plaintiffs." The assets subject to the order included all corporate stock, securities, cash investments, cash on hand in excess of $3,000, accounts at financial institutions, real property interests, receivables, partnership or other unincorporated venture interests, and promissory notes, and, as to the individual defendants, also any interests in trusts, retirement or profit-sharing plans, or life insurance policies.
The order also enjoined the defendant companies from "dispersing" any assets outside their "normal business and operating procedures" without the court's express permission and the plaintiffs' knowledge, and the individual defendants from transferring any assets "except as necessary to maintain the family property and family members in a customary fashion." The court further required the defendants to present it weekly with, among other things, listings of all cash disbursements and of all other disbursements that exceeded specified amounts, documents showing the nature of each business transaction, and financial statements. Finally, it required the defendants to "take the reasonable steps necessary to maintain all property in accordance with this preliminary injunction." The court conditioned entry of the injunction contingent on the plaintiffs' filing a $500,000 bond to secure damages to which the defendant might be entitled if the injunction proved unjustified.
The court also rendered findings of fact and conclusions of law. These recited that from 1968 to late 1985, through a variety of measures, defendants PATCO and its fuel supplying subsidiaries regularly charged the plaintiffs and other customers for more fuel and lubricating oil than was actually delivered. The court found that the companies and their officers had paid bonuses to employees based on the amount of fuel they had secretly withheld and had covered up these practices with various accounting devices and false invoices. Finally, the court found that the defendants had tried to secrete assets in the past and likely would continue to do so in the future. In so finding, the court credited the testimony of John H. Palmer, a former officer of PATCO and Channel Fueling, that the defendants "would do anything" to avoid paying a multimillion dollar judgment for treble damages.
Based on these findings, the court concluded that the plaintiffs had shown, "through uncontradicted evidence, a substantial likelihood of prevailing on the merits of the civil RICO claims that are common to their nine complaints" and that they faced "a real and immediate risk of irreparable harm should a preliminary injunction restraining certain transfers and liquidations of defendants' assets not issue." The court rejected the defendants' claim that the injunction would unduly burden them, noting that they had labored under similar restraints for 16 months and had described the alleged burdens in terms too general to enable the court to fashion a less stringent order. Finally, in response to the defendants' argument that RICO did not authorize or even precluded the injunction, the court held that it did not "need to divine powers and prohibitions in RICO's malleable text and legislative history," because the statutory provisions would not affect the court's "inherent power to protect--through equity--the future utility of a potential judgment for damages." At a later telephone conference with counsel, the district court reaffirmed that it had issued the injunction on the basis of its equitable powers, not RICO. The court later modified the injunction without altering its essentials.
To obtain a preliminary injunction, a plaintiff must show that (1) he has a substantial likelihood of prevailing on the merits, (2) he is likely to suffer irreparable injury if the injunction is not granted, (3) the threatened injury outweighs the threatened harm to the defendant from the injunction, and (4) granting the injunction will not disserve the public interest. 5
We review the district court's ultimate decision to grant the preliminary injunction under an abuse of discretion standard. 6 Conclusions of law underlying the court's decision, however, are subject to independent review. 7 The defendants raise such a purely legal question--whether, even assuming that all of the district court's findings were correct and that the four traditional standards for issuance of a preliminary injunction were met, the district court had power to enter the injunction. 8
The plaintiff relies primarily, as did the district court, on the court's "inherent" equitable power, arguing that RICO, a statute "intended to provide new [remedial] weapons of unprecedented scope," 9 cannot be...
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