Schrag v. Dinges
| Decision Date | 29 November 1993 |
| Citation | 73 F.3d 374 |
| Parties | RICO Bus.Disp.Guide 8919 NOTICE: Although citation of unpublished opinions remains unfavored, unpublished opinions may now be cited if the opinion has persuasive value on a material issue, and a copy is attached to the citing document or, if cited in oral argument, copies are furnished to the Court and all parties. See General Order of |
| Court | U.S. Court of Appeals — Tenth Circuit |
Before MOORE, BARRETT, and WEIS, * Circuit Judges.
ORDER AND JUDGMENTJ 1
After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of these appeals. See Fed. R.App. P. 34(a); 10th Cir. R. 34.1.9. The cases are therefore ordered submitted without oral argument.
These three appeals arise out of the same action brought pursuant to the Racketeering and Corrupt Organizations Act (RICO), 18 U.S.C.1961-1968. In No. 94-3005, plaintiffs appeal the district court's order of June 8, 1993, granting summary judgment to defendants Youngers, Shaffer, and Simpson on Count I of the third amended complaint and ordering plaintiffs to show cause why summary judgment should not be granted to the remaining defendants on Count I. See Schrag v. Dinges, 825 F.Supp. 954, 959 (D.Kan.1993). Plaintiffs also appeal the court's order of August 13, 1993, dismissing Count I of the third amended complaint, granting summary judgment to defendants Youngers and Shaffer on Counts II and III, and giving plaintiffs thirty days to show cause why Counts II and III should not be dismissed as to all defendants on statute of limitations grounds, see Schrag v. Dinges, 150 F.R.D. 664, 684 (D.Kan.1993). In addition, plaintiffs appeal the court's order of December 14, 1993, to the extent it granted summary judgment to the nonmoving defendants on Counts II and III based on the statute of limitations. Finally, plaintiffs' counsel appeals the district court's award of sanctions against him in the August 13 order. See id.
In No. 94-3093, defendant Youngers appeals the district court's order of March 1, 1994, denying his motion for Rule 11 sanctions against plaintiffs and their counsel. In No. 94-3102, defendant Simpson also appeals the district court's March 1 order, which denied his motion for Rule 11 sanctions, as well. See Schrag v. Dinges, 153 F.R.D. 665, 667 (D.Kan.1994). 2
The facts of the district court action are set forth in detail in the district court's opinions, and we will refer only to those that are relevant to our disposition of the present appeals. Plaintiffs' third amended complaint, which was 105 pages long, was comprised of four RICO counts and one count based on state law. Each of the RICO counts alleged a separate fraudulent scheme perpetuated by a different combination of the defendants against one or more of the plaintiffs. All of the allegedly fraudulent schemes were perpetuated for the purpose of creating and obtaining an interest in a real estate investment company, Rexmoor Properties, Inc., the stock of which would be publicly traded. The effort to take Rexmoor public ultimately failed, and in February 1984, Rexmoor withdrew its registration statement from the SEC.
Count I
Count I detailed what plaintiffs called the "Paganica Supper Club Scheme." Defendant Gary Dinges was president of, and a principal shareholder in, a real estate development company called Paganica, which owned a country club and golf course within a large residential development known as Pinnacle Park. Through a contract with the owners of the development, Paganica was responsible for managing and developing the surrounding residential lots. Within the country club complex was a supper club that was leased to S & M, Inc., a corporation in which plaintiffs Schwartz and Meier were two of the three shareholders.
The third amended complaint alleged that, by early 1981, Paganica was in serious financial trouble and defendants Gary Dinges and Jay Ewing, another Paganica shareholder, devised a plan to retire Paganica's debt and make a profit, as well. They decided to start a new company (Rexmoor), refinance Paganica's debt, transfer Paganica's assets to the new company, and retire the newly refinanced debt of Paganica through the sale of stock issued in the new company.
In the meantime, to keep Paganica afloat, the country club and golf course complex had to continue to operate. On April 1, 1981, Paganica, S & M, its three shareholders, and several individual guarantors who were Paganica shareholders, entered into a three-year management agreement. Pursuant to the management agreement, S & M was to take over the operation of the entire country club complex and golf course. The agreement provided that Paganica would acquire twenty percent of the stock of S & M, that S & M would have an option to purchase the complex and golf course for $1 million and that, in the event S & M failed to exercise its option to purchase the property, the individual shareholders could sell their remaining shares in S & M to Paganica or the guarantors for the sum of $400,000. The management agreement also contained the following provision, upon which Count I of the complaint is based: "It is agreed that the parties hereto shall not cause additional mortgages or encumbrances to be executed nor filed against any of the property described herein." App. to Br. of Appellants (No. 94-3005), Vol. III, Ex. N at 8. Gary Dinges executed the agreement both as the president of Paganica and as an individual guarantor. Plaintiffs allege that Ewing also personally guaranteed the agreement, although his signature does not appear on the original agreement in the record. See id. at 13.
Just two weeks after the management agreement was executed, Gary Dinges submitted a loan request in excess of $1 million to defendant Valley Federal Savings & Loan Association on behalf of Paganica. When Valley Federal's board voted against making the loan, Gary Dinges had to find another way to secure financing that would not require the board's approval. In November 1981, such a loan was arranged for Paganica, allegedly through the efforts of the following defendants: Gary Dinges; Ewing; Fred Shaffer, who was a major shareholder in Valley Federal; Mark Youngers, who was the chief financial officer for Valley Federal and a director of, and shareholder in, Paganica; Charles Brooks, who was the chief loan officer for Valley Federal; and Robert Simpson, who was the president of Peoples State Bank of Ellinwood, Kansas (Ellinwood Bank). Each of these defendants allegedly either had or acquired through the transactions at issue an ownership interest in Rexmoor and, therefore, each allegedly had an incentive to assist Paganica in its efforts to restructure its debt and transfer its assets to Rexmoor.
As a result of these defendants' alleged negotiations, in January 1982, Ellinwood Bank loaned Paganica $500,000 secured by a letter of credit issued by Valley Federal. In February, Valley Federal loaned Paganica $360,000, and in April, it loaned Paganica an additional $1,085,000. A portion of the proceeds from the latter loan was used to fund the letter of credit Valley Federal had issued to Ellinwood Bank. Both of the Valley Federal loans to Paganica were secured with mortgages encumbering the property that was subject to S & M's option under the management agreement. Sometime in 1984, Gary Dinges informed Schwartz and Meier about the mortgages.
In June 1988, plaintiffs Schwartz and Meier brought the present RICO claim against defendants Gary Dinges, Ewing, Shaffer, Youngers, Brooks, and Simpson, alleging they had either maintained an interest and control in, or participated in the conduct of affairs of, an enterprise through a pattern of racketeering, in violation of 18 U.S.C.1962(b),(c). Plaintiffs' theory was that Gary Dinges and Ewing never...
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