Qualley v. Clo-Tex Int'l, Inc.

• Decision Date: 15 December 1999
• Docket Number: No. 99-1572,CLO-TEX,99-1572
• Citation: Qualley v. Clo-Tex Int'l, Inc., 212 F.3d 1123 (8th Cir. 1999)
• Parties: (8th Cir. 2000) GEORGE T. QUALLEY, APPELLEE, v.INTERNATIONAL, INC., AND JOHN T. CROSS, SR., APPELLANTS. Submitted:
• Writing for the Court: Kyle
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1123

212 F.3d 1123 (8th Cir. 2000)

GEORGE T. QUALLEY, APPELLEE, v. CLO-TEX INTERNATIONAL, INC., AND JOHN T. CROSS, SR., APPELLANTS.

No. 99-1572

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: December 15, 1999

Filed: May 25, 2000

Appeal from the United States District Court for the Northern Northern District of Iowa

[Copyrighted Material Omitted] Before Beam and Heaney, Circuit Judges, and Kyle, District Judge. ¹

Kyle, District Judge.

George T. Qualley ("Qualley") brought suit in the United States District Court for the Northern District of Iowa alleging that Clo-Tex International, Inc. ("Clo-Tex") and John T. Cross, Sr., ("Cross") participated with as many as fifty other persons in a scheme to defraud Qualley's corporation, American African Trading Co., through the fictitious sale of Nigerian crude oil. Qualley asserted claims against Clo-Tex and Cross under the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. 1962(c) and (d), and Iowa common law for conspiracy to defraud. The jury returned a verdict in Qualley's favor, finding that Clo-Tex conspired to defraud Qualley's company, that Cross both conspired to violate and did violate RICO, that Cross and Clo-Tex were each liable to Qualley for actual damages, and that Clo-Tex was liable to Qualley for one million dollars in punitive damages.

Cross and Clo-Tex appeal, arguing that the district court erred in making several evidentiary rulings, in declining to give a requested jury instruction, and in sustaining the actual and punitive damages awarded by the jury. Cross and Clo-Tex also appeal from the district court's denial of their motion for judgment as a matter of law. For the reasons discussed below, we reverse and remand.

I.

George Qualley was a practicing attorney in Sioux City, Iowa from 1960 until his retirement in the mid 1990s. (Trial Tr. at 67.) Qualley specialized in tax law and commercial law. (Id.) By the 1970s and 1980s, Qualley had nine offices of his own in the United States, approximately 30 affiliated offices in the United States, and 15 or 16 affiliated offices in various parts of the world, including Nigeria. (Id.) The Nigerian law firm of Onyeukwu & Onyeukwu had been affiliated with Qualley's firm on certain international business transactions since the mid-1980s. (Id. at 68.)

The negotiations leading up to the fateful oil transaction by Qualley's company are long and involved. In summary, on or about November 14, 1994, Qualley received a letter from Maxwell Onyeukwu, a Nigerian barrister at the firm of Onyeukwu & Onyeukwu. ² Onyeukwu, apparently a delegate to Nigeria's Constitutional Conference, sought Qualley's help in arranging a meeting with "some leading Congressmen to exchange ideas on matters of ideological interest" in order to help his political bid for the Governorship of the Imo State. (Appellants' App. at 111.) Qualley responded that he was unable to put Onyeukwu in touch with American politicians; Qualley proposed instead that he and Onyeukwu work to develop trade relations between the United States and Nigeria as to certain products, including oil, gold, and shrimp. (Id. at 115-16, 118.)

On January 21, 1995, Onyeukwu stated that he had spoken to representatives of the Nigerian National Petroleum Corporation ("NNPC"). Onyeukwu reported that the NNPC was willing to sell 200,000 barrels of crude oil upon receipt up front of one-fourth the total cost, the balance being due upon receipt of the oil. (Id. at 119.) Qualley responded that he would not pay in advance for anything from Nigeria due to the political situation there, but could promise payment in full on delivery. (Id. at 120.)

Onyeukwu asked Qualley for a name to be used for incorporation in Nigeria so that they could enter into a joint venture with the NNPC for the "exporation [sic] sales and marketing of Nigerian crude oil." (Id. at 122.) Onyeukwu offered to incorporate the business for Qualley in Nigeria, but advised Qualley that the fees and taxes would be $39,300. (Id. at 124-25.) By a facsimile letter dated January 27, 1995, Qualley reiterated that he was unwilling to pay out any money prior to receiving earnings from the sale of the oil, but stated that he, together with his wife and his thirteen-year old son, would be the directors of the Nigerian corporation. (Id. at 127.) Qualley also told Onyeukwu that he had an order in hand for 2,000,000 barrels of oil and again promised payment in full for the oil upon delivery. (Id.) Sometime between January 31 and February 16, 1995, Onyeukwu sent Qualley a fax stating that the African Trading Company, Inc., had been incorporated in Nigeria on Qualley's behalf and asking Qualley to prepare letterhead stationery identifying the officers of the corporation. ³ (Id. at 133.)

On or about February 16, 1995, Qualley signed a letter addressed to NNPC on African Trading Company letterhead applying for a three-year contract to "spot lift" between two and ten million barrels of crude oil "for Shell International in London." ⁴ (Id. at 136; Trial Tr. at 332.) On or about March 8, 1995, Qualley traveled to Nigeria to meet with members of the NNPC and sign contracts for the purchase of 2,000,000 barrels of crude oil. (Trial Tr. at 125.) Qualley testified that he hired his friend, Leo Eriksen, an engineer, to travel with him and advise him. (Trial Tr. at 115.) On or about March 15, 1995, Qualley signed a contract to purchase the crude oil on behalf of American African Trading Company. (Appellants' App. at 141-50.) Eriksen signed as a witness. (Id. at 150.) Qualley testified that a "John West" signed the contract as a director of the NNPC. (Trial Tr. at 125-127.)

While Qualley was in Nigeria, Eriksen caused three wire transfers to be made to account number 17692470 at First National Bank of Maryland ("FNB Maryland"). ⁵ Qualley testified that John West provided the wiring instructions for the three transfers. (Trial Tr. at 134.) At this time, Clo-Tex, a Maryland corporation with its principal place of business in Baltimore, had account number 17692470 with FNB Maryland. (Trial Tr. at 65). All three wire transfers were made to the attention of John Cross, who was, at all material times, a stockholder, president and managing executive of Clo-Tex. (Id.) Cross testified that all three payments were credited to the account of a "Socit James Mercantile," a company located in Benin that purchases used clothing from Clo-Tex. (Id. at 503-05, 604-08.) The owner of Socit James Mercantile is a Nigerian named James Kalu who also apparently was known by the name James Kelly. (Id. at 505.)

On March 20, 1995, Qualley signed agreements relating to the shipment of the oil to the United States. (Appellants App. at 163-77.) The oil was to arrive in Houston. (Trial Tr. at 203.) Qualley returned to Iowa and, several days later, flew to Houston to meet John West and watch the oil arrive. (Trial Tr. at 203-06.) West never flew to Houston and the oil shipments never arrived. (Id.)

In August of 1995, the American African Trading Company assigned to Qualley whatever claims it had against Clo-Tex, Cross and the others. (Trial Tr. at 185-86.) Qualley filed his Complaint on August 29, 1995, naming 51 defendants including appellants Cross and Clo-Tex. Qualley obtained service of process only on Cross and Clo-Tex. ⁶

After a four-day trial, the jury returned a verdict by special interrogatories in favor of Qualley. The jury found that both Cross and Clo-Tex were liable to Qualley for actual damages totaling $41,282.00. ⁷ The jury also awarded Qualley one million dollars in punitive damages against Clo-Tex. However, the jury determined that Clo-Tex's wrongful conduct was not directed primarily at Qualley; therefore, under Iowa law Qualley was entitled to receive only twenty-five percent of the punitive damage award, the remainder to be paid into Iowa's Civil Reparations Fund. (Amended J.) Following trial, Qualley moved for and was awarded treble damages against Cross pursuant to 18 U.S.C. 1964. Cross and Clo-Tex filed a motion for judgment as a matter of law or, in the alternative, for a new trial. That motion was based on the same evidentiary issues asserted now on appeal and also challenged the punitive damages award as excessive. The trial court denied Appellants' motions.

II.

On appeal, Cross and Clo-Tex raise seven issues: (1) whether the trial court improperly admitted deposition testimony of Rudolph Datcher that contained inadmissible hearsay; (2) whether the trial court improperly admitted deposition testimony of Nathaniel Spinner that contained inadmissible hearsay; (3) whether the trial court improperly took judicial notice of the perpetration of Nigerian fraud schemes on Americans; (4) whether the trial court erred in refusing to instruct the jury on an "in pari delicto" defense; (5) whether the punitive damage award against Clo-Tex is excessive; (6) whether the jury erred in including the $24,000.00 in wire transfers in its compensatory damages award; and (7) whether the trial court erred in denying their motion for judgment as a matter of law. We begin with the evidentiary issues.

A trial court's evidentiary rulings are reviewed under an abuse of discretion standard. See United HealthCare Corp. v. American Trade Ins. Co., Ltd., 88 F.3d 563, 573 (8th Cir. 1996); Maddox v. Patterson, 905 F.2d 1178, 1179 (8th Cir. 1990); Adams v. Fuqua Indus., 820 F.2d 271, 273 (8th Cir. 1987). With respect to a trial court's ruling that admits evidence, error may not be predicated on such a ruling unless a substantial right of the party is affected and a timely objection or motion to strike appears of record stating the specific ground for objection. Fed. R. Evid. 103(a). Furthermore,

No error in either the admission or the exclusion of evidence and no error or defect in any ruling or order or in anything done or omitted by the court or by any of the parties is ground for granting a new trial or for setting...