Mitsubishi Intern. Corp. v. Cardinal Textile Sales, Inc.
| Citation | 14 F.3d 1507 |
| Decision Date | 09 February 1994 |
| Docket Number | Nos. 91-8775,91-8900 and 92-8192,s. 91-8775 |
| Parties | RICO Bus.Disp.Guide 8489 MITSUBISHI INTERNATIONAL CORPORATION, Plaintiff-Counterclaim-Defendant-Appellant, v. CARDINAL TEXTILE SALES, INC.; United General Marketing, Inc., Classic Sales, Inc., Charles W. Jones and Robert E. Lee, Defendants-Crossclaim- Plaintiffs-Appellees, General Sales & Leasing Co., Defendant-Counterclaim-Plaintiff-Crossclaim- Plaintiff-Appellee, Fibertex Textile Supplies, Inc., Defendant-Crossclaim-Defendant-Crossclaim-Plaintiff, Purvis-Sikkelee International, Ltd. and Skein Dyers of America, Inc., Defendants-Crossclaim-Defendants-Appellees, Raymond B. Lippincott, III, et al., Defendants, William J. Purvis, William L. Sikkelee and Consolidated Trading Co., Defendants-Appellees, Joseph Lee Smith, et al., Defendants-Crossclaim-Defendants, Hershel Nunley, et al., Defendants-Crossclaim-Plaintiffs, United States of America, et al., Movants. MITSUBISHI INTERNATIONAL CORPORATION, Plaintiff-Counterclaim-Defendant-Appellant, v. CARDINAL TEXTILE SALES, INC., et al., Defendants-Crossclaim-Plaintiffs, General Sales & Leasing Co., Defendant-Counterclaim-Plaintiff-Crossclaim-Plaintiff, Fibertex Textile Supplies, Inc., Defendant-Crossclaim-Defendant-Crossclaim-Plaintiff, Purvis-Sikkelee International, Ltd. and Skein Dyers of America, Inc., Defendants-Crossclaim-Defendants-Appellees, Raymond B. Lippincott, et al., Defendants, William J. Purvis and William L. Sikkelee, Defendants-Appellees, Hershel Nunley, et al., Defendants-Crossclaim-Plaintiff, United States of America, et al., Movants. |
| Court | United States Courts of Appeals. United States Court of Appeals (11th Circuit) |
Dorothy Y. Kirkley, Jones, Day, Reavis & Pogue, James A. Orr, Ronald T. Coleman, Jr., Paul, Hastings, Janofsky & Walker, Atlanta, GA, for appellant in Nos. 91-8775, 91-8900.
Kenneth A. Shapiro, Nancy F. Lawler, Atlman, Kritzer & Levick, Thomas R. Todd, Jr., Gregory R. Crochet, Michael K. Wolensky, Kutak, Rock & Campbell, Kevin L. Ward, David L. Turner, Schulten & Ward, Steven H. Sadow, Steven H. Sadow, P.C., Atlanta, GA, Bruce Alan Kling, Kinney, Kemp, Pickell, Sponcler & Joiner Dalton, GA, F. Gregory Melton, Tracey Scalfano Witt, Kinney, Kemp, Pickell, Sponcler & Joiner, Dalton, GA, William Scott Schulten, Schulten & Ward, Atlanta, GA, for appellees in No. 91-8775.
Kevin L. Ward, William Scott Schulten, Schulten & Ward, Atlanta, GA, Bruce Alan Kling, F. Gregory Melton, Kinney, Kemp, Pickell, Sponcler & Joiner, Dalton, GA, Steven H. Sadow, William Scott Schulten, Schulten & Ward, Atlanta, GA, for appellees in No. 91-8900.
Dorothy Y. Kirkley, Jones, Day, Reavis & Pogue, James A. Orr, William J. Holley, II, Ronald T. Coleman, Jr., Paul, Hastings, Janofsky & Walker, Atlanta, GA, for appellant in No. 92-8192.
F. Gregory Melton, Bruce Alan Kling, Kinney, Kemp, Pickell, Sponcler & Joiner, Dalton, GA, William Scott Schulten, Schulten & Ward, Atlanta, GA, for appellees in No. 92-8192.
Appeals from the United States District Court for the Northern District of Georgia.
Before TJOFLAT, Chief Judge, CARNES, Circuit Judge, and JOHNSON, Senior Circuit Judge.
This action for money damages is presently pending in the district court. 1 In order to ensure that the plaintiff will be able to satisfy any money judgment that it might ultimately obtain in this litigation, the district court, on the plaintiff's application for preliminary injunctive relief, imposed a constructive trust upon the assets of the defendants. The court also appointed a receiver to manage the assets of two groups of defendants.
The appeals before us, which we have consolidated for decision, are from orders of the district court modifying the constructive trust to permit some of the defendants to pay their lawyers for representation in this litigation. The plaintiff contends that the district court abused its discretion in allowing such payments from assets subject to the trust. Because we conclude that the district court had no lawful authority to impose the constructive trust or otherwise to attach the defendants' assets--and thus to prevent the defendants from using their assets to pay counsel--we affirm.
This case arises out of a series of transactions involving carpet yarn that began in 1989. 2 The transactions were structured by a small circle of individuals: Joseph L. Smith, the owner of Sun-Fibres, Inc. ("SFI"); Charles W. Jones and Robert E. Lee, the owners and operators of Cardinal Textile Sales, Inc. ("Cardinal") and General Sales & Leasing Co. ("General"), respectively; and two employees of Mitsubishi International Corporation ("Mitsubishi"), Raymond B. Lippincott, III, and Mary Ellen Lee, who managed the textile trading department in the company's Atlanta branch.
At the outset, the transactions were arranged as follows. Mitsubishi (from its Atlanta, Georgia, office) purchased carpet yarn from SFI and sold it on open account to Cardinal and General, two textile brokerage companies located in Dalton, Georgia. 3 Cardinal and General, in turn, sold the yarn to SFI's supplier, Purvis Sikkelee International, Ltd. 4 Apparently unknown to Mitsubishi management, but with the assistance of Mitsubishi employees Lippincott and Lee, the defendants thus established a circular series of yarn transfers that was repeated numerous times over the ensuing two years. 5
Mitsubishi paid SFI for the yarn it purchased through accounts established at Mitsubishi's bank. Payment was made on each transaction when SFI presented the bank with a set of documents, including a Mitsubishi purchase order and a packing list/bill of lading indicating that the yarn had been shipped to Mitsubishi's customer. Meanwhile, as was noted above, Cardinal and General were to pay Mitsubishi for the textiles on open account, the terms of which are not important here. In effect, through this financing arrangement, Mitsubishi extended credit for these transactions to its carpet yarn customers.
In 1990, SFI stopped shipping yarn altogether. 6 The transactions, however, continued on paper; SFI used false bills of lading to obtain payment from Mitsubishi's bank. SFI, Mitsubishi's customers (Cardinal and General), and the other defendants who were participating with them in the scheme all shared in the money made available by Mitsubishi under the financing arrangement established for the yarn transactions. For a time, while the yarn was still being shipped, Cardinal and General paid for some of the textiles. 7 By the time Mitsubishi brought this suit, however, the Cardinal and General accounts with Mitsubishi were several million dollars in arrears.
In an attempt to recover the arrearage, Mitsubishi brought this suit on July 3, 1991, in the United States District Court for the Northern District of Georgia against Cardinal, General, SFI, and several other parties whom it alleged had collaborated with those defendants in the scheme described above. As amended, Mitsubishi's complaint states causes of action in contract and tort. The complaint's terminology, however, is somewhat confused because it labels both bases for recovery and alternative remedies as "counts." 8 When examined closely, the complaint presents the following claims for relief: claims against Cardinal and General for breaching their respective promises to pay for the yarn Mitsubishi sold them and for accounts stated; claims against Lippincott and Ellen Lee for breaching their "duty of loyalty" as employees to Mitsubishi; claims against Cardinal and General, and against SFI, for fraud (the allegation being that those defendants fraudulently induced Mitsubishi to sell yarn to Cardinal and General by falsely representing that they would pay for the goods); and claims against all of the defendants under the federal and state RICO statutes based essentially upon such fraudulent misrepresentations.
In addition to these theories of recovery, the complaint also seeks, as equitable remedies but not as independent grounds of liability, the imposition of a constructive trust, an equitable accounting, and the appointment of a receiver. Taken collectively, the application in the complaint for this equitable relief asks the district court to impose a constructive trust on the defendants' assets so that funds will be available with which to satisfy any money judgment that might ultimately be rendered against one or more of the defendants; the appointment of a receiver would facilitate that process.
On the same day it filed its complaint, Mitsubishi petitioned the district court for a temporary restraining order to protect the assets of the defendants that Mitsubishi alleged it owned by operation of a constructive trust. The district court granted Mitsubishi's motion after a short hearing, concluding that:
It appears to the Court that Plaintiff Mitsubishi ... has a substantial likelihood of prevailing on the merits of one or more of its claims against Defendants; that immediate and irreparable injury, loss or damage will result to Plaintiff unless a restraining order is issued against Defendants; that the threat and injury to Plaintiff substantially outweigh any threat and harm the injunctive relief may do the Defendants; and granting injunctive relief will serve the public interest.
The court then froze a significant portion, albeit perhaps not all, of the assets of the defendants in an apparent attempt to ensure that any unlawfully obtained funds would be secured. The temporary restraining order provided as follows:
[P]ending a hearing on Plaintiff's Motion for Preliminary Injunction, or further Order of the Court, the Defendants ... are temporarily restrained from dissipating, transferring, pledging, encumbering, selling, disposing of, or making any other use of any and all monies received, directly or indirectly, from Joseph L. Smith or [SFI]; any and all monies received, directly or indirectly, as a result of yarn or fiber transactions involving Mitsubishi or Mitsubishi funds; and...
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