Lewisville Properties, Inc., Matter of, 87-1514

• Decision Date: 18 July 1988
• Docket Number: No. 87-1514,87-1514
• Citation: 849 F.2d 946
• Parties: RICO Bus.Disp.Guide 6987 In the Matter of LEWISVILLE PROPERTIES, INC., Debtor. John M. GRAY, Plaintiff-Appellant, v. Rex C. CAUBLE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 946

849 F.2d 946

RICO Bus.Disp.Guide 6987

In the Matter of LEWISVILLE PROPERTIES, INC., Debtor.

John M. GRAY, Plaintiff-Appellant, v. Rex C. CAUBLE, Defendant-Appellee.

No. 87-1514.

United States Court of Appeals, Fifth Circuit.

July 18, 1988.

Philip I. Palmer, Jr., Charles Ory, Palmer & Palmer, Dallas, Tex., for plaintiff-appellant.

Samuel J. Buffone, Asbill, Junkin, Myers & Buffone, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court For the Northern District of Texas.

Before WISDOM, RUBIN, and JONES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Gray appeals the district court's summary judgment dismissing his claim against Cauble brought pursuant to Sec. 1964(c) of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-1968 (West 1984 & 1987 Supp.) ("RICO"). We find no error in the district court's ruling denying the use of collateral estoppel to establish a Sec. 1962(c) violation from Cauble's prior criminal RICO conviction, and we further hold that Gray failed to produce sufficient independent evidence of the predicate acts of mail and wire fraud he alleged to withstand adverse summary judgment. ¹ Accordingly, we AFFIRM the district court's dismissal of the claim.

Certain of the material facts are uncontested. In 1973, Rex Cauble and Appellant Gray, a consultant to and later Chief Executive Officer of Dallas International Bank ("DIB"), agreed jointly to purchase a block of unsubscribed shares of DIB stock, with the purported intention of holding the stock until the bank's "development program" increased its assets and then selling it at a substantial profit. To finance the venture, several loans were obtained at the National American Bank ("NAB") in New Orleans. The loans, which were collateralized by DIB stock, were made in Gray's name and personally guaranteed by Cauble. ² Eventually Gray fell behind on his loan payments, prompting the bank to liquidate some of the stock posted as collateral and in July 1978, to foreclose on the loan. Cauble honored his loan guarantee by purchasing the stock pledged as collateral and paying the remaining deficiency.

During 1977 and 1978, Gray had actively sought the sale of DIB and held unsuccessful negotiations with several prospective buyers. To enhance the bank's saleability, Gray increased the bank's deposits by attracting short-term, "hot" money deposits ³ and engaged in other questionable and risky banking practices. By the fall of 1978, the DIB, under Gray's stewardship, came under the scrutiny of the Texas State Banking Commission and the Federal Deposit Insurance Corporation. At the suggestion of those organizations, an independent board was set up to manage the bank temporarily.

These events, to which Gray and Cauble assign markedly different interpretations, ⁴ gave rise to the present litigation instituted by Gray in 1980. Gray's original complaint was filed as a cross-action against Defendants Cauble and Cauble Enterprises, Ltd., in two consolidated adversary proceedings brought in the bankruptcy case of Lewisville Properties, Inc., a company owned by Gray. The initial complaint contained only state law fraud claims, but, following the criminal RICO conviction of Rex Cauble ⁵ in Gray maintained throughout this litigation that his case is limited to proving causation and damages because Cauble's RICO conviction establishes by collateral estoppel all other elements of the Sec. 1964(c) civil action. The district court, however, refused to invoke collateral estoppel in this case because it found that Gray had failed to establish an identity between the facts and issues involved in the civil and criminal actions as required by United States v. Monkey, 725 F.2d 1007 (5th Cir.1984). In separate action, ⁶ the court granted Cauble's motion for summary judgment on the merits, after finding that all the acts which Cauble committed in furtherance of the alleged conspiracy either did not occur or that Cauble was privileged to commit them.

1982, it was amended to include a civil RICO claim, which is the subject of this appeal.

DISCUSSION

The sole issue raised by Gray on appeal is whether the district court erred as a matter of law in refusing to invoke collateral estoppel to establish the alleged civil RICO violations. ⁷ Collateral estoppel is an equitable doctrine which precludes relitigation of issues that were a necessary part of, and were actually decided in a prior judgment. Sidag Aktiengesellschaft v. Smoked Foods Products, 776 F.2d 1270, 1275 (5th Cir.1985). Collateral estoppel is available to plaintiffs in civil racketeering litigation. See, e.g., Anderson v. Janovich, 543 F.Supp. 1124 (W.D.Wash.1982); State Farm Fire & Casualty Co. v. Estate of Caton, 540 F.Supp. 673 (N.D.Ind.1982). The doctrine depends on three elements: 1) the issue at stake must be identical to the one involved in the prior litigation; 2) the issue must have been actually litigated in the prior litigation; and 3) the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in that earlier action. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979); United States v. Monkey, 725 F.2d 1007, 1010 (5th Cir.1984). Trial courts have been accorded wide latitude in ascertaining when collateral estoppel may be applied offensively. See Hauser v. Krupp Steel Producers, Inc., 761 F.2d 204, 207 (5th Cir.1985); Nations v. Sun Oil Company, 705 F.2d 742, 744-45 (5th Cir.), cert. denied, 464 U.S. 893, 104 S.Ct. 239, 78 L.Ed.2d 229 (1983).

The district court rejected Gray's appeal for offensive collateral estoppel, reasoning that his complaint alleged a different enterprise and different racketeering acts from those proven in the criminal proceeding, and the civil litigation would thus require the adjudication of issues not addressed in the criminal proceeding. This analysis is sound. Instead of seeking to estop Cauble from relitigating specific facts or legal issues decided in the criminal case, Gray has asserted a much broader theory. Baldly stated, he contends that Cauble's conviction for importing and selling illegal drugs establishes all the factual and legal issues (except causation and damages) of the civil RICO claim which alleges that Cauble defrauded Gray (a) by orchestrating Gray's ouster from his positions at DIB, and (b) by misrepresenting Cauble's intentions with regard to his future plans for the jointly held DIB stock.

While we have no doubt that the civil and criminal proceedings could raise some common issues, Gray's sweeping collateral estoppel theory is untenable in light of the differences between the civil and criminal pleadings. As the district court observed, the criminal indictment identified "Cauble Enterprises" as the enterprise forming the basis of RICO liability. United States v. Cauble, 706 F.2d 1322, 1331 (5th Cir.1983), cert. denied, 465 U.S. 1005, 104 S.Ct. 996, 79 L.Ed.2d 229 (1984). The enterprises alleged in the civil claim are "the joint venture of Rex Cauble and John Gray" and the "Dallas International Bank." This most elemental predicate of a RICO violation was not resolved or formally addressed in Cauble's criminal case. Similarly, the pattern of racketeering activity set forth in the civil action is distinct from that which served as the basis for the criminal convictions. ⁸ The district court did not err in refusing to allow Gray to employ offensive collateral estoppel.

We turn to the issue whether, absent reliance on collateral estoppel, Gray has presented evidence sufficient to raise "genuine, triable issues of material fact." ⁹ The summary judgment standard set forth in Federal Rule of Civil Procedure 56(c) ¹⁰ was recently explained by the Supreme Court in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To avoid summary judgment, the non-moving party must adduce admissible evidence which creates a fact issue concerning the existence of every essential component of that party's case; naked assertions of an actual dispute will not suffice. See Liberty Lobby, 477 U.S. at 255-56, 106 S.Ct. at 2510-11; Celotex, 477 U.S. at 322, 323, 106 S.Ct. at 2553-54.

Our review of the record reveals that no genuine issues of material fact have been raised as to several critical elements of Appellant's RICO claims. Gray's complaint asserts that, in carrying out the objective of removing Gray from a control position at DIB and obtaining control over the enterprise, Cauble conspired with Cauble Enterprises and committed the following predicate acts:

a) The use of the mails to carry out a scheme to defraud within the meaning of 18 U.S.C. Sec. 1341, and specifically causing the mailing of the Notice of Foreclosure on or about July 1, 1978, by the American National Bank of New Orleans to John M. Gray demanding payment in full by July 6, 1978 or foreclosure would take place on July 7, 1978.

b) Fraud by wire within the meaning of 18 U.S.C. Sec. 1343 and specifically

i) Telephoning John M. Gray on July 6, 1978, to tell Gray that he, Cauble, was unable to halt the foreclosure ii) Telephoning John M. Connally in May of 1978 to persuade Connally to have his client cease any plans to buy the "DIB".

iii) Telephoning the directors and major shareholders of "DIB" in September and October of 1978, to persuade them that the "DIB" was in serious trouble and that Gray was the sole problem.

Mail and wire fraud violations result from a scheme devised for the purpose of defrauding by means of false pretenses, which includes representations or promises and use of the mails or interstate wire communications in furtherance of that scheme. ¹¹ Gray produced no evidence establishing the existence of such a scheme other than his own unsubstantiated and conclusory allegations concerning the events surrounding the...