Harrell v. DCS Equipment Leasing Corp.

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: Before WISDOM, HIGGINBOTHAM, and SMITH; WISDOM; Also, regardless of the additional evidence; Nowlin
• Citation: Harrell v. DCS Equipment Leasing Corp., 951 F.2d 1453 (5th Cir. 1992)
• Decision Date: 30 January 1992
• Docket Number: ROTHSCHILD-RESERVE,90-8445,Nos. 90-8429,s. 90-8429
• Parties: , 34 Fed. R. Evid. Serv. 1290 Marshall HARRELL, on behalf of himself and all others similarly situated, MARY LEE HARRELL, and Patsy Bryant, Plaintiffs-Appellants, Norman P. Rounds, et al., Intervenors-Plaintiffs-Appellants. v. DCS EQUIPMENT LEASING CORPORATION, et al., Defendants-Appellees. Mary Lee HARRELL, et al., Plaintiffs-Appellants, v. Barry H. TRUPIN, et al., Defendants-Appellees. Marshall HARRELL, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v.INTERNATIONAL, INC., et al., Defendants-Appellees.

Page 1453

951 F.2d 1453

23 Fed.R.Serv.3d 1201, 34 Fed. R. Evid. Serv. 1290

Marshall HARRELL, on behalf of himself and all others

similarly situated, MARY LEE HARRELL, and Patsy

Bryant, Plaintiffs-Appellants, Norman P. Rounds, et al., Intervenors-Plaintiffs-Appellants. v. DCS EQUIPMENT LEASING CORPORATION, et al., Defendants-Appellees.

Mary Lee HARRELL, et al., Plaintiffs-Appellants, v. Barry H. TRUPIN, et al., Defendants-Appellees.

Marshall HARRELL, on behalf of himself and all others

similarly situated, Plaintiff-Appellant, v. ROTHSCHILD-RESERVE INTERNATIONAL, INC., et al., Defendants-Appellees.

Nos. 90-8429, 90-8445.

United States Court of Appeals Fifth Circuit.

Jan. 30, 1992.

Roy O. Minton, Martha S. Dickie, Minton, Burton, Foster & Collins, Austin, Tex., for Barry Trupin, Rene Trupin, Tara Trupin and Ben Trupin.

Edward F. Sherman, Austin, Tex., for Mary Lee and Marshall Harrell, et al.

Kemp W. Gorthey, Winstead, Sechrest & Minick, Austin, Tex., for Norman P. Rounds, et al.

Roy O. Minton, Martha S. Dickie, Minton, Burton, Foster & Collins, Alan D. Albright, Akin, Gump, Strauss, Hauer & Feld, Austin, Tex., for defendants-appellees in No. 90-8429.

Appeals from the United States District Court for the Western District of Texas.

Before WISDOM, HIGGINBOTHAM, and SMITH, Circuit Judges.

WISDOM, Circuit Judge:

In this appeal the plaintiffs/appellants contend that the trial court erred by setting aside various default judgments, revising an entry of partial summary judgment, directing a verdict in favor of certain defendants, incorrectly instructing the jury, and excluding certain evidence. We reject all of these contentions and affirm the judgment of the district court.

I. BACKGROUND

This case involves appeals from several individual suits that were consolidated at the trial level.

A. Cause No. A-88-CA-298.

In April 1988 Marshall Harrell filed suit in the United States District Court for the Western District of Texas ("No. 298") against the defendants Barry Trupin, his wife Renee, his daughter Tara, his father Ben Trupin (collectively, "the Trupin family defendants"), and six corporations allegedly controlled by Barry Trupin. ¹ The complaint in this suit alleged violations of RICO, violations of Texas and federal securities law, common law fraud, and breach of fiduciary duty.

These claims are based on Mr. Harrell's investments in 1981-82 in Barry Trupin's computer equipment leasing programs. The investments were "one-on-one" transactions in which the investor individually purchased and took title to computer equipment. These transactions offered an investor a substantial tax deduction through depreciation with potential future profits from remarketing the equipment. The investor would purchase the equipment from one of the defendant companies, giving a note for substantially all of the purchase price, and then lease the equipment to another defendant company under a lease agreement calling for payments equal to payments under the purchase note. The purchase price of the equipment would serve as the basis for tax deductions by the individual investor. Thus, with a minimum cash payment (which was used almost entirely to pay "fees" of the various companies associated with the promotion), the investors received substantial initial deductions used to offset other income.

There were two fundamental IRS requirements which had to be met for tax deductions taken by the investors to withstand IRS scrutiny: first, the partnership must be a legitimate business with the potential for profit; and second, the investors must be "at risk" for the entire amount of their investment used as a basis for depreciation deductions. Before this suit was filed the IRS had begun to scrutinize the deductions taken by Mr. Harrell with regard to the one-on-ones. The IRS later disallowed the deductions and in 1988 sued for back taxes, interest, and penalties.

The corporate defendants made an appearance (a request for additional time in which to file their answer), but never filed an answer to the complaint. In June 1988 the clerk entered the default of five of the six corporate defendants; no default was entered at that time against DCS Equipment Leasing Corporation ("DCS"). In October 1988 default judgments were entered against those five corporate defendants jointly and severally. The judgment was in the amount of $6,637,576.02 (representing the treble damages claimed under the RICO count), plus attorney fees.

A seventh corporate defendant, Tarat Properties Corporation ("Tarat"), was later added to the complaint. In December 1988 the default of Tarat was entered by the clerk. In February 1989 default judgment was entered against Tarat.

In April 1989 Judge James R. Nowlin severed Harrell's remaining claims and transferred the severed case to Judge Lucius D. Bunton under the cause number A-89-CA-359 ("No. 359"). At that time only DCS and the Trupin family remained as defendants.

B. Cause No. A-89-CA-502.

In May 1989 Mary Lee Harrell (Marshall Harrell's mother), Patsy Bryant (as Trustee for the Marshall Harrell III 1980 Mineral Trust), and Marshall Harrell (individually and as custodian for Marshall Harrell III) filed suit in the United States District Court for the Western District of Texas against the Trupin family defendants, the six corporate defendants who were originally sued in No. 298, Peter Dalrymple, General Information Associates ("GIA"), and Rothschild Registry International, Inc.

The plaintiffs' causes of action in this suit ("No. 502") were substantially similar to those in No. 298. In the transaction, however, the investors purchased an interest in a limited partnership, GIA, which took title to the computer equipment. The purchase price of the equipment served as the basis for tax deductions by the partnership which were then passed on to each limited partner.

By late 1986 or early 1987 Mr. Trupin was financially unable to continue with the management of all the matters involving the partnerships and therefore made financial and business arrangements to have the duties performed by Madison Equipment Company. He transferred the books and records to Madison at that time.

In September 1989 Judge Bunton consolidated No. 359 with No. 502. The corporate defendants in No. 502 never made an appearance. In February 1990 the clerk entered the defaults of GIA, Rothschild Registry International, Inc., and five of the other corporate defendants. Default judgments were never entered with respect to these defendants. In March 1990 the clerk entered the default of DCS. In April 1990 Judge Bunton entered a default judgment against DCS.

On April 16, 1990, Judge Bunton entered a partial summary judgment in favor of the plaintiffs, finding that Barry Trupin was the general partner of GIA and owed a continuing fiduciary duty to the limited partners. On that same day, Judge Bunton reassigned the consolidated case to Judge Nowlin.

C. The Intervenors.

In June 1989 the intervenors ² filed a complaint in the United States District Court for the District of Colorado against Barry Trupin and several of his corporations, as well as his attorneys and accountants. In November 1989 the intervenors filed a motion in the Western District of Texas for leave to intervene in the consolidated case. Judge Bunton granted the intervenors' motion. The intervenors then filed a complaint in intervention that alleged claims similar to those alleged by the original consolidated plaintiffs. ³ The transaction underlying the intervenors' causes of action was their investment in General Information Associates 3 ("GIA3"), a limited partnership established for the same purposes as GIA. The corporate defendants also failed to respond to the intervenors' complaint.

D. Trial.

In April 1990 Judge Nowlin presided over the jury trial of the consolidated case, which now included the intervenors' claims. At the time of trial only the Trupin family defendants remained; all other defendants had defaulted. At the end of the plaintiffs and the intervenors' case, Judge Nowlin entered a directed verdict in favor of Renee Trupin, Tara Trupin, and Ben Trupin. The only remaining defendant was Barry Trupin. The case was submitted to the jury by special verdict with 43 special interrogatories and no general verdict form.

The jury returned its verdict on May 9, 1990. The jury's verdict was resoundingly in favor of Barry Trupin. The jury found that Barry Trupin:

(1) had not violated the federal RICO statute; ⁴

(2) had not violated the Securities and Exchange Act; ⁵

(3) had not violated the Texas Securities Act; ⁶

(4) had not violated the Texas Business and Commerce Code; ⁷

(5) had not committed common law fraud; ⁸

(6) had not breached a fiduciary obligation, if any; ⁹

(7) had not created certain trusts for illegal purposes; ¹⁰ and

(8) had not used the various corporations as a means or a sham to perpetuate fraud or promote injustice. ¹¹

The only finding that might possibly be a finding against Barry Trupin was the jury's finding that he was the alter ego of the corporations involved in the computer-lease operation. ¹²

E. Post Trial Motions.

Based on the jury's finding that Barry Trupin was the alter ego of the corporations, the plaintiffs moved for judgment against Barry Trupin in the amount of the default judgments they held against the corporate defendants. The plaintiffs and the intervenors renewed their motions for default judgment against the other defaulting defendants and also moved for judgment against Barry Trupin based on those defaults.

Barry Trupin moved the court to set aside the default judgments entered against the corporate defendants in No. 298.

On June 13, 1990, Judge Nowlin denied the plaintiffs and the intervenors' motions for default judgments in the consolidated case and on June 15, 1990, set aside the default judgments that had been entered in No. 298 on October 23, 1988, and February 15, 1989. The default judgment against DCS entered...