Pujol v. Shearson/American Exp., Inc., 87-1190

• Decision Date: 29 September 1987
• Docket Number: No. 87-1190,87-1190
• Citation: 829 F.2d 1201
• Parties: RICO Bus.Disp.Guide 6752 Francisco PUJOL, et al., Plaintiffs, Appellants, v. SHEARSON/AMERICAN EXPRESS, INC., et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 1201

829 F.2d 1201

RICO Bus.Disp.Guide 6752

Francisco PUJOL, et al., Plaintiffs, Appellants, v. SHEARSON/AMERICAN EXPRESS, INC., et al., Defendants, Appellees.

No. 87-1190.

United States Court of Appeals First Circuit.

Argued July 30, 1987.

Decided Sept. 29, 1987.

Diane H. Tutt with whom Blackwell, Walker, Fascell & Hoehl, Miami, Fla., Wallace Gonzalez Oliver, San Juan, P.R., Harold D. Vicente, and Harold D. Vicente Law Offices, Santurce, P.R., were on brief, for plaintiffs, appellants.

Roger D. Netzer with whom Philippe M. Salomon, Willkie Farr & Gallagher, New York City, Jay Garcia Gregory and Fiddler Gonzalez & Rodriguez, San Juan, P.R., were on brief, for defendants, appellees.

Before CAMPBELL, Chief Judge, and BOWNES and NOONAN, ^* Circuit Judges.

BOWNES, Circuit Judge.

Plaintiffs-appellants Francisco Pujol and his wife Ana Bonelli de Pujol (Bonelli), individually and as representatives of the conjugal partnership constituted between them, appeal from the dismissal of their complaint and the denial of their motion for partial summary judgment against defendants-appellees Shearson/American Express, Inc., and several individual Shearson executives. Appellants had sued in United States District Court for the District of Puerto Rico, alleging nine causes of action, including both federal and Commonwealth claims, growing out of the employment relationship between Pujol and Shearson.

I. FACTUAL BACKGROUND

In reviewing a ruling on a motion to dismiss, we treat all well-pleaded allegations in the complaint as true. See, e.g., Bricker v. Crane, 468 F.2d 1228, 1232-33 (1st Cir.1972), cert. denied, 410 U.S. 930, 93 S.Ct. 1368, 35 L.Ed.2d 592 (1973).

In 1980, Pujol joined Shearson (Puerto Rico) and Shearson/American Express as Executive Vice President/Investment Banking and Vice President, respectively. In 1983, Pujol became President of Shearson (Puerto Rico) and resident manager of Shearson's Puerto Rico branch. Shortly after assuming these posts in 1983, Pujol perceived serious deficiencies in the "internal controls" of both Shearson companies in Puerto Rico. Pujol notified Shearson's top management that Shearson was selling securities to residents of Puerto Rico on the basis of fraudulent misrepresentations that the income therefrom was tax-exempt. As early as 1982, Pujol had notified Shearson executives that the income was taxable. Pujol refused to sign an explanatory letter to clients because he felt that it did not unequivocally disclose the taxable nature of the income.

Pujol also notified Shearson executives that there had been a number of banking transactions involving misuse of funds in violation of the United States Internal Revenue Code, the Puerto Rico Industrial Incentives Act and Regulation 2848 of the Department of Treasury of Puerto Rico. Pujol was instructed not to take any corrective action and not to report the irregularities to the appropriate authorities.

At a meeting on October 26, 1987, Pujol submitted a letter to Shearson executives stating that Shearson's Puerto Rico counsel should be consulted as to whether the facts ascertained by an internal audit should be immediately reported to federal and/or Commonwealth authorities. Copies of the letter were sent to Shearson's Puerto Rico counsel and other Shearson executives.

Immediately after submitting the letter, Pujol was notified that he was being temporarily "suspended" from his duties at Shearson until the completion of the internal audit. Early that same afternoon, persons acting under instructions from the Shearson audit team changed the locks on Pujol's office door. Two days later an article in a local newspaper reported the uncovering of a scandal at Shearson in terms implicating Pujol. The article was then reported in other newspapers and broadcast media.

Pujol reported his findings to the Department of Treasury of Puerto Rico. Shearson filed a response stating that Pujol was directly and indirectly involved in the irregularities discovered at Shearson.

Shearson notified Pujol that it had decided to revoke Pujol's American Express card and to retain more than $35,000 that Pujol had in an account with Shearson. Shearson also seized and withheld personal property and files, belonging to both Pujol and Bonelli, that Pujol had kept in his office. Pujol's and Bonelli's files were ransacked and copies were made of their personal and confidential documents.

II. PROCEEDINGS BELOW

A. Summary

We summarize the complicated procedural history of this case, involving at least three separate legal forums, in chronological order.

On November 10, 1983, Pujol instituted proceedings in the Superior Court of Puerto Rico seeking the return of his personal property kept at his former office and a copy of the report submitted by Shearson to the Puerto Rico Treasury Department. Bonelli and the conjugal partnership later joined as plaintiffs in this action.

On November 25, 1983, Shearson submitted a petition to the Arbitration Director of the New York Stock Exchange initiating an arbitration proceeding against Pujol. This request was submitted pursuant to a clause in Pujol's employment contract stating:

Any controversy between me [i.e., Pujol] and any member organization arising out of my employment or the termination of my employment shall be settled by the arbitration procedure prescribed in the Constitution and rules then obtaining of the [New York Stock] Exchange.

On December 9, 1983, the Puerto Rico Superior Court dismissed Pujol's first request as moot in view of Shearson's offer to return the property in question. It ordered the report to the Treasury Department to be delivered to Pujol in twenty days.

On December 23, 1983, Pujol requested leave from the Superior Court to file an amended complaint seeking an injunction against Shearson from arbitrating the dispute in New York. The Superior Court denied this request on January 30, 1984, basing its ruling on the terms of Pujol's employment contract.

On March 26, 1984, Pujol and Bonelli instituted the present action in United States District Court on behalf of themselves and their conjugal partnership. Their complaint listed the following nine causes of action against Shearson and the individual defendants:

(1) Treble damages action for violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-64 (RICO);

(2) Violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b) and Rule 10b-5, 15 C.F.R. Sec. 240.10b-5;

(3) Wrongful discharge and breach of employment agreement;

(4) Libel and slander;

(5) Invasion of privacy;

(6) Conversion, wrongful attachment and other wrongful uses of legal process;

(7) Negligent infliction of emotional distress;

(8) Wrongful arrest;

(9) "Shearson's ongoing campaign to discredit and disgrace Pujol."

In October, 1984, Pujol submitted a reply and seven counterclaims in the arbitration proceedings. The counterclaims asserted claims identical to the third through ninth causes of action contained in the district court complaint, with all references to Bonelli and the conjugal partnership deleted. In November, 1985, the panel of arbitrators dismissed Shearson's claims and found Shearson liable to Pujol, pursuant to the counterclaims, in the amount of $1,197,914.40 plus interest and costs in the amount of $18,700. The arbitrators made no factual findings in conjunction with their award. On July 10, 1987, the award was confirmed by the Circuit Court for the Eleventh Judicial Circuit in and for Dade County, Florida. Shearson has appealed to the Third District Court of Appeal of Florida.

B. The Rulings of the Puerto Rico District Court

On September 17, 1984, appellees moved in Puerto Rico District Court to dismiss the complaint or, in the alternative, to stay the proceedings pending the outcome of arbitration. In December, 1985, appellants moved for partial summary judgment based on the collateral estoppel effect of the November, 1985, arbitration award. Appellees also moved for summary judgment. In February, 1987, the district court granted appellees' motion to dismiss all causes of action and, consequently, denied the motions for summary judgment.

Appellants appeal from the dismissal of the RICO action (first cause of action) and the dismissal of the third through ninth causes of action insofar as those claims relate to the claims of Bonelli and the conjugal partnership. Appellants also contest the denial of their motion for partial summary judgment. They do not challenge the dismissal of the second cause of action, the claim for securities violations.

III. THE RICO CLAIM

The central issue on appeal in relation to the RICO claim is that of standing. Civil remedies under RICO are provided for by 18 U.S.C. Sec. 1964(c):

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

In Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), the Court explained the standing requirement implied by this provision:

If the defendant engages in a pattern of racketeering activity in a manner forbidden by [Sec. 1962], and the racketeering activities injure the plaintiff in his business or his property, the plaintiff has a claim under Sec. 1964(c).... [T]he plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation.

Id. at 495-96, 105 S.Ct. at 3285-86.

There are, thus, two requirements for standing under Sec. 1964(c): (1) a plaintiff must show that there has been a violation of Sec. 1962, and (2) he must show that his injury was caused by the violation. A violation of Sec. 1962 occurs if the defendant committed at least two "predicate acts."...