International Floor Crafts v. Dziemit ( 2011 )

United States Court of Appeals
For the First Circuit
Nos. 09-1555
09-1556
09-2349
INTERNATIONAL FLOOR CRAFTS, INC.,
Plaintiff, Appellee/Cross-Appellant,
v.
JANE DZIEMIT,
Defendant, Appellant/Cross-Appellee,
DAVID W. ADAMS; TYRONE WILLIAMS; KEVIN BRITTO; RONALD E.
MITCHELL, Individually and d/b/a Mansfield Rug Company, a/k/a
Mansfield Rug Department, a/k/a Remco; MICHAEL E. BROWN,
Individually and d/b/a Dalton Padding, d/b/a Empire Weavers;
AGATHA ESPOSITO; DONALD SHOOP; CHINESE CARPET CENTER, INC., d/b/a
CCC International; JOHN D. SUN; DAVID D. SUN; PAUL SUN,
Defendants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Torruella, Stahl and Howard,
Circuit Judges.
Isaac H. Peres for appellant/cross-appellee Dziemit.
Paul J. Klehm, with whom Benjamin L. Falkner and Krasnoo
Klehm LLP were on brief, for appellee/cross-appellant
International Floor Crafts, Inc.
April 21, 2011
STAHL, Circuit Judge. This trio of related appeals
arises from a 2005 civil action brought by International Floor
Crafts, Inc. ("IFC") for violations of the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and
various Massachusetts state laws after IFC discovered a multi-
million dollar fraudulent scheme being perpetrated against it by
numerous individuals and entities. By mid-2008, only two
defendants remained in the suit — David Adams, a former employee of
IFC, and Jane Dziemit, an outside business woman. After a joint
five-day trial, the jury returned a verdict against both Adams and
Dziemit.
There are three appellate issues before the court, which
involve only Dziemit and IFC.1 Dziemit argues that the denial of
her motion for judgment as a matter of law was in error and that
the district court's jury instruction on common law fraud was
incorrect. IFC cross-appeals with respect to one state law claim
it brought under the Massachusetts Consumer Protection Act, Mass.
Gen. Laws ch. 93A ("Chapter 93A"), on which the district court
refused to enter judgment. Lastly, Dziemit separately appeals the
district court's imposition of an appeal bond for $10,000. For the
following reasons, we affirm the district court's judgment against
Dziemit and its imposition of the bond, and, at IFC's request, we
decline to rule on the Chapter 93A claim.
1
Adams did not appeal the jury verdict.
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I. Background
We recite the facts in the light most favorable to the
jury verdict. Anaya-Burgos v. Lasalvia-Prisco, 607 F.3d 269, 270
n.1 (1st Cir. 2010). Building 19, Inc. ("Building 19") is a
company that operates fourteen retail discount stores throughout
the New England area selling a wide variety of consumer products.
IFC manages the rug department of Building 19, and it is
responsible for supplying Building 19's flooring inventory, which
consists mostly of surplus and salvage oriental rugs, indoor and
outdoor rugs, remnants, padding, and wood flooring.
Because the scheme at issue involved the exploitation of
IFC's business practices, we summarize briefly IFC's procedures for
buying and selling rugs. Typically, IFC buyers negotiate with
outside vendors to purchase merchandise for retail sale. Upon
placing an order with a vendor, the IFC buyer creates a purchase
order detailing the product bought, the price of the product, and
the outside vendor's information. The buyer then provides copies
of this purchase order to the vendor, an IFC warehouse, and IFC's
accounts payable department.
After receiving a copy of the purchase order, the vendor
sends IFC an invoice and delivers the goods to the IFC warehouse.
An IFC receiver accepts the product, and a supervisor at the
warehouse completes a receiving document termed a "key-rec." The
key-rec details the merchandise received, and the supervisor is
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required to initial the document after having verified the contents
of the delivery. Once the key-rec is complete, it is sent to IFC's
accounts payable department. The accounts payable department
cross-checks the corresponding purchase order, invoice, and key-
rec. If personnel see no discrepancies in the paperwork, an
accounts payable manager issues payment to the vendor.
A. The Scheme
Starting sometime in the mid-1990s and lasting until
April 2005, Adams and co-conspirator Kevin Britto devised and
managed a fraudulent scheme that duped IFC into paying out millions
of dollars to various vendors based on fabricated invoices. As IFC
buyers,2 Adams and Britto prepared purchase orders for partially or
completely fake merchandise shipments, recording on the orders an
exaggerated amount of items purchased. Britto communicated these
fake purchases to Tyrone Williams, another IFC employee and the
supervisor of IFC's largest warehouse. Williams, in turn,
completed fraudulent key-recs to match the fraudulent purchase
orders.
Various outside vendors were brought into the scheme, and
some of these vendors were sham operations. These outside vendors
2
Britto worked for IFC from July 1988 to November 1997, and
again from September 1998 to September 2001. He continued to
receive money from the scheme even after he left IFC. Adams was
initially an outside vendor who did business with IFC, but IFC
later hired him as a buyer. Adams was terminated from IFC sometime
in 2005, which precipitated the discovery of the fraud.
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would send invoices to IFC that matched the phony purchase orders
and key-recs, allowing the scheme to continue undetected by the
accounts payable department. Adams directed the vendors to charge
a specific amount on its invoices, and when IFC's accounts payable
department issued a check based on that amount, the vendors would
distribute approximately seventy-five percent of the ill-gotten
gains to Adams, keeping the remainder for themselves.
Chinese Carpet Center, Inc. ("CCC") was the primary
vendor that colluded with Adams and Britto. David Sun, CCC's
former treasurer, testified at trial about the company's knowing
participation, and he detailed the scheme's inner-workings. He
explained that CCC was consistently required to advance to Adams
large sums of money via cash, check, and wire transfers. In turn,
CCC would bill IFC for short or nonexistent shipments. When CCC
received payment from IFC, it was paid back the initially loaned
amount along with a profit, which was shared between CCC and Adams.
Sun explained that this loan system kept CCC in the scheme and made
it difficult to disengage, lest CCC not recoup the money it had
advanced.
B. Dziemit's Role and the Evidence Against Her
Prior to her involvement in the scheme, Dziemit worked as
a mortgage lender associated with various companies, many of which
were owned and operated by her boyfriend, Tony Maresca. Dziemit's
primary activity was the completion of loan paperwork for the
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companies, and she worked out of her home in Connecticut. At
times, Dziemit would also make loans to third parties, drawing upon
Maresca's mortgage companies or her own personal accounts to supply
the funds. Each time Dziemit completed a loan, she executed a
mortgage and a promissory note, and she profited from the loan
based on the interest that it accrued.
Maresca was a long-time friend of Ronald Mitchell.
Mitchell owned and operated a carpet underlay supply business known
as Remco, and later, as Mansfield Rug, which sold padding. At some
point in his career, Mitchell, doing business as Remco, sold
padding to retail operations that he obtained from legitimate
businesses. His company had no employees other than himself. In
1999 or 2000, Dziemit began working with Mitchell as part of
Remco,3 and she became a partner of the company for a few years.
Around this time, Dziemit and Mitchell, along with Maresca, met
with Adams at a Building 19 store to initiate a business
relationship.
Mitchell and Dziemit testified at trial about their
dealings with Adams and the transactions that were involved.
According to their testimony, Adams would communicate to Mitchell
a specific amount of money that Mitchell, d/b/a Remco, was to lend
3
Evidence at trial also demonstrated that Dziemit was involved
with Mansfield Rug, a successor in name to Remco, to the extent
that she received at least two checks from the Mansfield Rug bank
account.
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to Adams, purportedly so that Adams could purchase rugs. Then,
Adams would send Mitchell an IFC purchase order that included a
description of product ostensibly being supplied by Remco and the
amount that Remco was to charge IFC on an eventual invoice. The
invoice amount was always greater than the loan amount, and the two
figures in no way corresponded. Mitchell would then fax the
purchase order to Dziemit and communicate to her the amount of the
loan to Adams.
Dziemit, acting in her lending capacity, would lend to
Mitchell the money to be advanced to Adams. Except for the first
loan executed, Dziemit did not secure any notes or mortgages
evidencing or securing these loans.4 Then, switching hats and
acting as a Remco partner, Dziemit would advance the money to
Adams, or at times, to Britto. Many of these advances were
completed via wire transfers. Although Mitchell and Dziemit
claimed that Adams used this advanced money to buy the merchandise
that was listed on the purchase order and that was ostensibly being
supplied by Remco, neither of them ever saw any product that was
bought or shipped, and they never sought to visit a warehouse.
4
At one point in January 2001, Mitchell, not Dziemit, obtained
a mortgage on Adams' property. Dziemit claimed to have an
assignment on the mortgage, but she never produced this during
discovery or at trial. Even if Dziemit had a mortgage on Adams'
property, she did not have one on Mitchell's property, even though
the money she lent went to Mitchell, doing business as Remco.
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Beyond the purchase order, there was no documentation that the
product existed.
Approximately two or three weeks after Dziemit advanced
money to Adams, Adams would alert Remco to submit an invoice to
IFC. Dziemit drafted the bulk of the invoices and either she or
Mitchell would mail them. Upon receipt of the invoice, IFC would
send a check to Dziemit's post office box, or, at least one time,
directly to Dziemit's home. Dziemit would endorse the check from
IFC and deposit it into the account from which she initially
borrowed the funds, which could have been her personal account or
the account of one of Maresca's companies; Dziemit did not keep
good records, and many of the transactions were recorded as
handwritten notations on various papers. Dziemit would then send
Adams a portion of the profit and share the remainder with
Mitchell. At no time throughout her involvement was Dziemit ever
actually engaged in the sale of padding, Remco's purported
business.
When Dziemit testified at trial, she walked the jury
through a sample transaction, using a $25,000 loan she made to
Mitchell and then advanced to Adams on November 18, 1999. On
January 19, 2000, approximately two months later, Dziemit received
an invoice payment from IFC for $41,550.04. She deposited that
amount into one of her mortgage accounts, wired just over $10,000
to Adams as his share of the profit, and split the remainder of the
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gains with Mitchell. Dziemit personally profited $2915.28 from
this loan. She agreed that this transaction indicated what would
have been a 66 percent interest rate on an annual basis for the
$25,000 loan, much more than what she would have earned on a
typical secured mortgage loan.5
Sometime in late 2001, Dziemit ceased being a partner in
Remco. She did, however, continue to loan funds to Mitchell, and
these loans, along with a profit, were repaid to her. She also
received money both during the time she was a partner and later,
through 2003, even when she did not advance any funds. In total,
Dziemit completed approximately 35 transactions for Remco, and each
transaction took less than an hour. She estimated that for these
35 hours of work, she made approximately $130,000.
Dziemit admitted at trial that these transactions were a
departure from her normal course of business. Dziemit had never
before lent money to one of her business partners, nor had she ever
lent money without receiving security. Dziemit estimated that she
advanced a total of approximately $1.4 million to Mitchell for the
transactions. Apparently, of the total amount lent, she had
security for only $40,000. Further, never before in her business
did Dziemit earn money from a loan based on a profit, rather than
5
As explained to the jury, Dziemit's payment represented
approximately 11 percent of the loaned $25,000, which, extrapolated
to a yearly rate, demonstrated that Dziemit would have made 66
percent on the loan.
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on the accrued interest. Indeed, in all of her previous lending
activities, Dziemit knew the percentage she would earn on a loan,
but with respect to the loans to Mitchell, she did not know how
much she would earn on a particular loan at the time she made the
advance. Additionally, there was no relationship between the
amount Dziemit advanced and the ultimate profit that she earned.
C. The Discovery of the Fraud and the Subsequent Suit
In March 2005, IFC terminated Adams for poor performance.
The buyer hired to replace Adams began to notice various
discrepancies between purchases Adams allegedly made and the
product available for retail sale. After delving through records,
the new buyer contacted Mitchell about several missing deliveries
ostensibly from Mansfield Rug. Mitchell, trying to stave off any
inquiries into the transactions, forwarded a fake bill of lading
that he created with the help of Britto. He also misled the buyer
into believing that he had a warehouse full of goods and that other
documents related to any deliveries were destroyed and therefore
unavailable for verification. Around this time, IFC's accounts
payable department performed an internal investigation, which
ultimately uncovered the scheme. The department determined that it
had paid almost $10 million in fraudulent invoices from Remco,
Mansfield Rug, and CCC.
On August 10, 2005, IFC brought suit against Adams,
Britto, Williams, CCC and its officers, Mitchell, and Dziemit,
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among many others, for violations of RICO and Massachusetts state
law. In 2006, it settled with CCC and its officers and employees.
In 2007, it filed a suggestion of apparent death as to Britto, who
had been suffering from a grave liver disease. Prior to Britto's
death, IFC videotaped his deposition, wherein Britto confessed to
the scheme, implicated Adams and Williams, and denied the knowing
involvement of Dziemit and Mitchell. In 2008, an agreement for
judgment was entered against Mitchell for over $3 million, and
default judgment was entered against Williams. By July 21, 2008,
only Dziemit and Adams remained to stand trial for the following
claims: (1) violations of RICO; (2) conspiracy to violate RICO;
(3) common law fraud; and (4) as to Adams only, breach of fiduciary
duty. The district court reserved for itself IFC's Chapter 93A
claim against Dziemit and Adams.
On July 29, 2009, the district court charged the jury,
and the following day, the jury returned its verdict. It found
both Adams and Dziemit liable to IFC for violations of RICO and
common law fraud. It further found Adams, but not Dziemit, to have
engaged in conspiracy to violate RICO, and it found Adams liable
for breach of fiduciary duty. The jury awarded IFC $5 million in
damages against Adams, and $250,000 against Dziemit. Pursuant to
the RICO statute, the district court trebled these damages and
awarded IFC $522,281 in costs, including attorneys' fees.
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A flurry of post-trial motions ensued, only some of which
are relevant for present purposes. IFC moved for entry of judgment
against Adams and Dziemit on the Chapter 93A count. The district
court denied the motion in an electronic order issued that same
day, stating, "Because full damages were determined by the jury and
trebled by the Court pursuant to 18 U.S.C. § 1964(c), the Chapter
93A claim is rendered duplicative and redundant and plaintiff's
motion is denied." IFC sought reconsideration, which the district
court also denied.
Thereafter, Dziemit renewed her motion for judgment as a
matter of law, for which she initially moved at the close of IFC's
case-in-chief and at the close of trial, arguing that there was
insufficient evidence to find that she knowingly and willfully
engaged in any fraud, or was willfully blind to the scheme. The
district court denied this motion as well.
In her subsequent appeal, Dziemit now argues that IFC
failed to present sufficient evidence to establish that she
knowingly and willfully committed two or more acts of mail and/or
wire fraud, rendering the RICO and common law fraud verdicts void.
She also argues that the district court erred in providing the jury
with a "willful blindness" instruction as to the common law fraud
claim, and, to the extent that the instruction was proper, there
was still insufficient evidence to prove that she was willfully
blind.
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IFC cross-appealed. It argues that although the district
court was correct to reserve the Chapter 93A claim for itself, the
court erroneously denied IFC's motion for judgment on the claim
because IFC presented sufficient evidence to support it.
Lastly, Dziemit appeals the district court's order that
she post an appeal bond that includes attorneys' fees as "costs on
appeal." IFC sought a bond pursuant to Federal Rule of Appellate
Procedure 7, after Dziemit filed her notice of appeal, to ensure
payment of its appellate costs, including attorneys' fees. The
district court granted IFC's motion and required Dziemit to post a
bond for $10,000, of which $5000 was meant to cover appellate fees.
Because we find that IFC presented sufficient evidence to
support the jury's verdict that Dziemit violated RICO and committed
common law fraud, and because we find no plain error in the
district court's jury instructions, we affirm the judgment against
Dziemit. Because we affirm the judgment against Dziemit, we
decline to rule on IFC's Chapter 93A claim at IFC's request.
Lastly, we affirm the issuance of the appeal bond and hold that an
appeal bond may include appellate attorneys' fees if the applicable
statute underlying the litigation contains a fee-shifting provision
that accounts for such fees in its definition of recoverable costs
and the appellee is eligible to recover them.
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II. Analysis
A. Dziemit's Appeal in Relation to the Jury Trial and Verdict
We review de novo a district court's denial of a renewed
motion for judgment as a matter of law. Alvarado-Santos v. Dep't
of Health, 619 F.3d 126, 132 (1st Cir. 2010). Under such
circumstances, we examine the evidence "in the light most favorable
to the verdict and may reverse only if no reasonable person could
have reached the conclusion arrived at by the jury." Id. (citing
Valentín-Almeyda v. Municipality of Aguadilla, 447 F.3d 85, 95-96
(1st Cir. 2006). The court's review "is weighted toward
preservation of the jury verdict," Rodowicz v. Mass. Mut. Life Ins.
Co., 279 F.3d 36, 41 (1st Cir. 2002), which will stand "'unless the
evidence was 'so strongly and overwhelmingly' inconsistent with the
verdicts that no reasonable jury could have returned them,'" id.(quoting Walton v. Nalco Chem. Co., 272 F.3d 13, 23 (1st Cir.
2001)).
1. RICO
To succeed on a civil RICO claim under 18 U.S.C.
§ 1962(c), a plaintiff must prove: "'(1) conduct, (2) of an
enterprise, (3) through a pattern, (4) of racketeering activity.'"
Kenda Corp. v. Pot O' Gold Money Leagues, Inc., 329 F.3d 216, 233
(1st Cir. 2003) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S.
479, 496 (1985)). "By statute, the 'pattern' element requires a
plaintiff to show at least two predicate acts of 'racketeering
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activity,' which is defined to include violations of specified
federal laws, such as the mail and wire fraud statutes." Id.(quoting Efron v. Embassy Suites (P.R.) Inc., 223 F.3d 12, 15 (1st
Cir. 2000)) (internal quotations marks omitted); see also 18 U.S.C.
§ 1961(1), (5). Mail or wire fraud requires proof of: (1) a scheme
to defraud, (2) knowing and willful participation in the scheme
with the intent to defraud, and (3) the use of the mails or
interstate wire in furtherance of the scheme. Bonilla v. Volvo Car
Corp., 150 F.3d 62, 66 (1st Cir. 1998).
Dziemit does not challenge that IFC proved the existence
of a scheme to defraud or that Dziemit used the mails or interstate
wire in furtherance of the scheme. She argues only that IFC failed
to prove that she knowingly and willfully committed mail or wire
fraud, asserting that she was a peripheral participant and unaware
of her complicity. She states that the lack of direct evidence
attesting to her knowledge coupled with her own exculpatory
testimony and that of Britto demonstrates that a reasonable juror
could not have found her liable under RICO.
We reject Dziemit's contention. A review of the evidence
in the light most favorable to IFC demonstrates that IFC presented
sufficient evidence for a jury to conclude by a preponderance of
the evidence that Dziemit knowingly and willfully participated in
defrauding IFC. First, the jury heard testimony from Mitchell and
David Sun from which it could infer Dziemit's knowledge. Mitchell,
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Dziemit's partner, admitted that he agreed to a judgment against
himself and that he lied to IFC in an attempt to stave off
inquiries into his companies' dealings. David Sun admitted to
CCC's complicity and described in terms strikingly similar to
Dziemit that it was required to advance large sums of money to
Adams via wire transfers and checks, and that it would make a
profit on these advances once IFC paid its invoices.
Second, the evidence demonstrated that Dziemit was
involved from the start in the transactions between Remco and
Adams. Dziemit, along with Mitchell and Maresca, met Adams at a
Building 19 store to initiate their dealings, and she continued to
conduct transactions with Adams for approximately three years.
Third, Dziemit, a Remco partner purportedly in the
business of selling rug padding, advanced large sums of money to
Adams, a buyer of rug products. Further, she acknowledged that she
never saw a Remco warehouse or any product it allegedly sold.
Although she drafted and sent invoices to IFC, she never had any
verification, apart from Adams' word as told to her through
Mitchell, that any rugs were being delivered to IFC.
Fourth, and perhaps most significant, Dziemit admitted to
the unusual nature of her profits and her dealings with Adams and
Mitchell. Dziemit advanced money to Mitchell, her business
partner, and then, in turn, advanced that money to Adams, the
ostensible buyer, often through wire transfers or checks. She lent
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this money from and deposited money back into various accounts,
including both business and personal accounts, and she kept
haphazard records. Dziemit advanced a total of approximately $1.4
million to Mitchell but had only $40,000 secured. She earned money
not from the interest rate of the loans she provided, but from a
profit realized upon charging IFC an amount that had no relation to
the initial loan. Were these profits interpreted as earned
interest, they would be considerably higher than any typical
interest rate earned on a mortgage. In total, Dziemit was paid
$130,000 for approximately 35 hours of work, less than a typical
workweek. She was compensated even when she was no longer a
partner and even when she did not advance any money.
This evidence, when viewed in the aggregate, was
sufficient for the jury to conclude that Dziemit knowingly
committed two or more acts of mail or wire fraud. See Bourjaily v.
United States, 483 U.S. 171, 179-80 (1987) ("[I]ndividual pieces of
evidence, insufficient in themselves to prove a point, may in
cumulation prove it."). To be sure, Dziemit's and Britto's
testimony claimed, unsurprisingly, that Dziemit did not knowingly
engage in the scheme, but the abundant circumstantial evidence at
trial permitted the jury to make a contrary inference. See United
States v. Boylan, 898 F.2d 230, 242 (1st Cir. 1990) (noting that a
party may "'prove its case through the use of circumstantial
evidence so long as the total evidence, including reasonable
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inferences, is sufficient to warrant a jury to conclude that the
defendant is guilty'" (quoting United States v. Campa, 679 F.2d
1006, 1010 (1st Cir. 1982))).
In support of her argument, Dziemit contends for the
first time on appeal that the evidence regarding her knowing and
willful participation in the scheme is further undermined by the
jury's verdict, which did not find her liable for conspiring to
violate RICO. She asserts that if the jury did not find her to
have knowingly joined a conspiracy, then it could not have found
her to have knowingly and willfully committed fraud.
This argument is a dead end. "Objections to the
inconsistency of verdicts must be made after the verdict is read
and before the jury is discharged." Babcock v. Gen. Motors Corp.,
299 F.3d 60, 63 (1st Cir. 2002); see also Kenda, 329 F.3d at 223
n.4. Failure to object timely renders the claim waived or
forfeited and, at most, subject to only plain error review.
Babcock, 299 F.3d at 63-64 (applying plain error review to
unpreserved inconsistent verdict claim deemed forfeited); see also
Uphoff Figueroa v. Alejandro, 597 F.3d 423, 435 n.15 (1st Cir.
2010) (finding inconsistent verdict claim waived and afforded no
review because party failed to object before jury was dismissed);
Wennik v. PolyGram Grp. Distrib., Inc., 304 F.3d 123, 130 (1st Cir.
2002) (finding inconsistent verdict claim waived and, at most,
entitled to plain error review).
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Here, even if we apply the plain error standard,
Dziemit's claim fails. Under plain error review, we reverse only
if (1) there is an error, (2) that was obvious and clear under
current law, (3) that affected substantial rights, and (4) that
threatened a miscarriage of justice. Babcock, 299 F.3d at 64-65.
Plain error is strictly applied in civil cases, and we will grant
relief "only to prevent a clear miscarriage of justice or where the
error seriously affected the fairness, integrity or public
reputation of judicial proceedings." Id. at 65 (quoting Romano v.
U-Haul Int'l, 233 F.3d 655, 664 (1st Cir. 2000)) (internal marks
omitted). Dziemit does not even attempt to demonstrate how her
claim meets this standard, nor do we see how it could.
2. Common Law Fraud
Dziemit next argues that IFC failed to present sufficient
evidence to support its common law fraud claim. To prove fraud
under Massachusetts law, a plaintiff must show that "the defendant
'made a false representation of material fact with knowledge of its
falsity for the purpose of inducing the plaintiff to act thereon,
and that the plaintiff reasonably relied upon the representation as
true and acted upon it to his damage.'" Taylor v. Am. Chemistry
Council, 576 F.3d 16, 31 (1st Cir. 2009) (quoting Russell v. Cooley
Dickinson Hosp., Inc., 772 N.E.2d 1054, 1066 (Mass. 2002)). At
trial, the district court instructed the jury that it could infer
Dziemit's knowledge from circumstantial evidence or, as to the
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fraud claim only, from evidence that showed willful blindness.
Under a willful blindness formulation, the defendant does not need
to actually know that the statements she made were false if the
falsity is "susceptible of actual knowledge." See Kozdras v.
Land/Vest Props., Inc., 413 N.E.2d 1105, 1111 (Mass. 1980).
IFC's theory of the case was that Dziemit was liable for
fraud for the same reason that she was liable under RICO, because
she knowingly submitted false invoices to IFC. In turn, Dziemit
asserts on appeal that IFC's evidence was inadequate to sustain its
fraud claim for the same reasons she stated in challenging the RICO
judgment, that is, that the evidence against her did not
demonstrate that she actually knew that the invoices she sent to
IFC were fraudulent. Further, she claims that, to the extent that
the court properly instructed the jury that knowledge as to common
law fraud could be proved by willful blindness (which she contests
on appeal), the evidence did not indicate that she was willfully
blind to her fraud since not even IFC was able to discover the
scheme until almost ten years after it began.
Dziemit's challenge to the fraud claim unravels in view
of our conclusion that the evidence at trial reasonably supported
a finding of RICO liability. As we explained in our determination
of Dziemit's RICO argument, a jury could have reasonably inferred
from the circumstantial evidence that Dziemit actually knew that
the invoices she mailed to IFC were fraudulent. This alone is
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sufficient to sustain the fraud claim, as the jury needed to find
only actual knowledge or willful blindness to deem Dziemit liable
for fraud.
3. Willful Blindness Instruction
Dziemit claims that the district court erred in supplying
the jury with a willful blindness instruction for the common law
fraud claim.6 She argues, first, and with no citation to case law,
that the instruction is improper in the civil context and instead
is reserved solely for criminal matters. Second, parroting her
sufficiency of the evidence argument, she contends that even if the
instruction was not in error as a matter of law, it was improper in
this case because there was not "'record evidence reveal[ing]
'flags' of suspicion that, uninvestigated, suggest willful
blindness.'" See United States v. Epstein, 426 F.3d 431, 440 (1st
Cir. 2005) (quoting United States v. Coviello, 225 F.3d 54, 70 (1st
Cir. 2000)).
6
The relevant portion of the common law fraud instruction was
as follows:
[T]he defendant then under consideration is
liable if he or she made a false statement of
fact knowing it to be false. You may infer
such knowledge from circumstantial evidence or
from evidence showing willful blindness of
that person. If you find that a person had a
strong suspicion but shut his or her eyes for
fear of what he or she might learn, you may
conclude that that person acted knowingly.
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Dziemit raises this issue for the first time on appeal,
and so we review only for plain error.7 See Fed. R. Civ. P.
51(d)(2); Ji v. Bose Corp., 626 F.3d 116, 125 (1st Cir. 2010).
Here, we need not consider whether any error occurred because even
if it did, it was harmless.8 As is evident from the jury's
7
Dziemit claims to have objected below to the willful
blindness instruction for common law fraud. She is wrong. The
record demonstrates unambiguously that she did not object to this
instruction at the charge conference or at any time after the
instruction was given to the jury. Indeed, the only issue as to
the willful blindness instruction arose from whether it could be
used to support liability under RICO, for which IFC advocated and
which the district court rejected (an issue not raised on appeal).
Indeed, Dziemit's trial counsel stated that he did not believe the
instruction was proper for the RICO claim, but that it was
appropriate for the common law fraud count because for "fraud --
there is language in cases, I think, that allows a lower standard,
if you will, which is this willful blindness, where you may know
something but you basically take the position, I don't want to know
what it is that's going on."
8
We note, however, that Massachusetts appears to support a
willful blindness instruction in civil fraud suits. The
Massachusetts Superior Court Civil Practice Jury Instructions for
intentional misrepresentation read:
The defendant is liable if [he/she] made a
false statement of fact, knowing it to be
false. Likewise, if the defendant made an
unqualified statement about facts, the truth
or falsity of which the defendant could have
determined with certainty, and gave the
plaintiff the reasonable impression that
[he/she] was speaking of [his/her] own
knowledge, then the defendant is not excused
from liability if [he/she] did not in fact
know whether that statement was true or false.
The law regards such willful disregard of the
facts as equivalent to an intentional
misrepresentation. Actual intent to deceive
need not be proven.
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determination that Dziemit was liable for violating RICO, it found
that Dziemit actually knew that she engaged in mail and/or wire
fraud. The jury, then, did not need to rely on the willful
blindness instruction to reach its verdict on the fraud claim; its
finding of liability would have been the same even without the
instruction.
B. IFC's Cross-Appeal in Relation to its Chapter 93A Claim
On its cross-appeal, IFC argues that the district court
erred in denying its motion for entry of judgment against Dziemit
on its Chapter 93A claim. It seeks a remand to the district court
to make findings, or a ruling from this court on the merits.
During oral argument, this court asked counsel for IFC
whether it wished to pursue its Chapter 93A claim in the event that
the court upheld the jury verdict against Dziemit. Although
counsel indicated during argument that it would still seek the
claim's resolution, it reversed its position in a letter
subsequently mailed to the court. In view of IFC's stance, because
we affirm the judgment against Dziemit based on the jury verdict,
we decline to address its Chapter 93A claim.
Mass. Super. Ct. Civil Practice Jury Instr. § 20.1.4; see also,
e.g., Kozdras, 413 N.E.2d at 1111 ("'[I]f a statement of fact which
is susceptible of actual knowledge is made as of one's own
knowledge and is false, it may be the basis for an action of deceit
without proof of an actual intent to deceive.'" (quoting Pietrazak
v. McDermott, 167 N.E.2d 166, 168 (Mass. 1960)).
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C. Dziemit's Appeal in Relation to the Appeal Bond
Federal Rule of Appellate Procedure 7 states, "In a civil
case, the district court may require an appellant to file a bond or
provide other security in any form and amount necessary to ensure
payment of costs on appeal." Fed. R. App. P. 7. IFC moved in the
district court for such a bond after Dziemit filed her notice of
appeal, asking that Dziemit be required to post $30,000 to cover
$5000 of IFC's anticipated expenses and $25,000 of its appellate
attorneys' fees. IFC argued that the inclusion of attorneys' fees
in a Rule 7 bond is proper when the statute underlying the
litigation contains a fee-shifting provision that includes
attorneys' fees as part of costs awardable, as RICO does. The
district court granted IFC's motion and ordered Dziemit to post an
appeal bond of $10,000 within fifteen days. In doing so, it did
not adopt IFC's reasoning and instead held that because Dziemit's
appeal bore "the indicia of frivolousness," the bond could include
fees as part of the costs on appeal.
Dziemit appealed the district court order and did not
post the bond by the deadline. Thereafter, the parties filed
several motions, both in district court and in this court, related
to the bond. Dziemit sought to stay the bond, IFC sought to
dismiss Dziemit's appeals for her failure to post the bond, IFC
sought to stay the merits appeals pending resolution of the bond
appeal, and IFC moved for a briefing extension in view of the
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appeal bond issue. This court issued an order on November 17,
2009, denying Dziemit's motion to stay the bond and IFC's motions
to stay or dismiss the appeals. We granted IFC's motion for a
briefing extension and directed the parties to address the circuit
split concerning the inclusion of attorneys' fees in an appeal
bond.
We review for abuse of discretion a district court's
imposition of an appeal bond, including its view that an appeal is
frivolous. Sckolnick v. Harlow, 820 F.2d 13, 15 (1st Cir. 1987).
Whether attorneys' fees may be part of the "costs on appeal" under
Rule 7, however, presents a question of law accorded de novo
review. See Riva v. Ficco, 615 F.3d 35, 40 (1st Cir. 2010);
Adsani v. Miller, 139 F.3d 67, 71 (2d Cir. 1998).
In accounting for attorneys' fees in the appeal bond, the
district court relied on our opinion in Sckolnick v. Harlow, 820
F.2d 13. There, we found a district court did not abuse its
discretion by including fees in a bond because it concluded
impliedly that "the appeal might be frivolous and . . . an award of
sanctions against plaintiff on appeal was a real possibility." Id.
at 15. Here, however, we need not evaluate the district court's
finding of frivolity because we affirm the issuance of the bond on
an alternative ground. See P.R. Ports Auth. v. Umpierre-Solares,
456 F.3d 220, 224 (1st Cir. 2006) ("We may affirm a district court
decision on any ground supported by the record."). In doing so, we
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endorse the majority view that a Rule 7 bond may include appellate
attorneys' fees if the applicable statute underlying the litigation
contains a fee-shifting provision that accounts for such fees in
its definition of recoverable costs and the appellee is eligible to
recover them. See Azizian v. Federated Dep't Stores, Inc., 499
F.3d 950 (9th Cir. 2007); In re Cardizem CD Antitrust Litig., 391
F.3d 812 (6th Cir. 2004); Pedraza v. United Guar. Corp., 313 F.3d
1323 (11th Cir. 2002); Adsani, 139 F.3d 67.
As the Second, Sixth, Ninth, and Eleventh Circuits have
found, there are several reasons to support our holding. First,
Rule 7 does not define the term "costs on appeal." Although the
American rule establishes that each party to a litigation is
responsible for paying its own attorneys' fees, several statutes
enacted prior to both the 1968 adoption of the Federal Rules of
Appellate Procedure and the 1979 amendment to Rule 7 contain
exceptions to the American rule and define costs recoverable to
include fees.9 See Marek v. Chesny, 473 U.S. 1, 7-8 (1985).
Courts understand these fee-shifting statutes to account for
appellate fees as well. Azizian, 499 F.3d at 958; see also
Farmington Dowel Prods. Co. v. Forster Mfg. Co., 421 F.2d 61, 91 &
n.2 (1st Cir. 1970) (noting that Clayton Act, which includes fee-
9
At the adoption of the Rules, Rule 7 required an appellant to
file a bond in the fixed amount of $250. An amendment in 1979
eliminated the requirement and left the bond issuance and amount to
the discretion of the district court. See Fed. R. App. P. 7
advisory committee's note (1979).
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shifting provision comparable to RICO, allows a plaintiff to
recover appellate fees if he sustains on appeal a district court
judgment of a violation). It is presumed that the Rule drafters
were aware of these statutes and understood "costs" under Rule 7 to
provide for these fees when applicable. See Adsani, 139 F.3d at
73; see also Marek, 473 U.S. at 8-9.
Supreme Court precedent supports this view. In Marek v.
Chesney, 473 U.S. 1, the Court interpreted "costs" as stated in
Federal Rule of Civil Procedure 6810 to encompass attorneys' fees
when a fee-shifting statute included the fees as part of the
recoverable costs. It explained:
[G]iven the importance of "costs" to the Rule,
it is very unlikely that this omission [of a
definition of "costs"] was mere oversight; on
the contrary, the most reasonable inference is
that the term "costs" in Rule 68 was intended
to refer to all costs properly awardable under
the relevant substantive statute or other
authority.
Id. at 9.
Second, our holding is not contrary to Federal
Rule of Appellate Procedure 39. Rule 39, entitled "Costs"
establishes: (a) against whom costs may be assessed, (b) the
10
Rule 68 controls offers of judgment. For offers not
accepted, "If the judgment that the offeree finally obtains is not
more favorable than the unaccepted offer, the offeree must pay the
costs incurred after the offer was made." Fed. R. Civ. P. 68(d)
(2010). In Marek, the Court found that these "costs" include
attorneys' fees when the relevant statute underlying the litigation
defined awardable costs as both costs and fees. 473 U.S at 8-9.
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circumstances under which costs may be assessed for or against the
United States, (c) costs for brief and appendix copies, (d) the
procedure for claiming costs, and (e) costs on appeal that are
taxable in the district court. Dziemit argues that the list of
taxable costs in subdivision (e), which does not include attorneys'
fees,11 defines "costs" for Rule 7 purposes and limits the universe
of costs that may be awarded on appeal. We are unconvinced. No
part of Rule 39 purports to define costs; each concerns only the
procedures for taxing them. Adsani, 139 F.3d at 74. Further, the
Rule does not limit "costs on appeal" under Rule 7. The advisory
committee's note at the adoption of the Rules explains that "[t]he
costs described in [Rule 39(e)] are costs of the appeal and, as
such, are within the undertaking of the appeal bond." Fed. R. App.
P. 39(e) advisory committee's note (1967) (emphasis added). We
understand this to mean that the costs delineated in Rule 39(e)
11
Rule 39(e) reads:
The following costs on appeal are taxable in
the district court for the benefit of the
party entitled to costs under this rule:
(1) the preparation and transmission of the
record;
(2) the reporter's transcript, if needed to
determine the appeal;
(3) premiums paid for a supersedeas bond or
other bond to preserve rights pending
appeal; and
(4) the fee for filing the notice of appeal.
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"are among, but not necessarily the only, costs available on
appeal" or for a bond. Azizian, 499 F.3d at 958.12
Third, although two cases, one from the D.C. Circuit and
one from the Third Circuit, have found Rule 39(e) to restrict the
costs calculable for Rule 7 purposes, the cases presented
distinguishable circumstances since neither involved a fee-shifting
statute. Adsani, 139 F.3d at 73-74; see In re Am. Presidential
Lines, Inc., 779 F.2d 714 (D.C. Cir. 1985); Hirschensohn, 1997 U.S.
App. LEXIS 13793, at *7 (finding Virgin Island statute did not
provide for appellate attorneys' fees). Moreover, the D.C. Circuit
has since concluded that Rule 39 "costs" taxable in the district
court do include appellate attorneys' fees when the statute
underlying the appeal allows the recovery of the fees as part of
costs. See Montgomery & Assocs., Inc. v. Commodity Futures Trading
Comm'n, 816 F.2d 783, 784 (D.C. Cir. 1987).
Applied here, we find no error of law in the inclusion
of attorneys' fees for Dziemit's Rule 7 bond. Under the RICO
statute, "Any person injured in his business or property by reason
12
We acknowledge that earlier editions of some treatises stated
that attorneys' fees were outside the scope of a Rule 7 bond. See
Hirschensohn v. Lawyers Title Ins. Corp., No. 96-7312, 1997 U.S.
App. LEXIS 13793, at *6 (3d Cir. June 10, 1997) (unpublished)
(citing 20 James Wm. Moore, et al., Moore's Federal
Practice, § 339.41 (3d ed. 1997); 16A Charles Alan Wright & Arthur
R. Miller, Federal Practice & Procedure § 3953 (2d ed. 1996)).
More recent editions, however, merely acknowledge the circuit split
without endorsing a position. See, e.g., 16A Charles Alan Wright
et al., Federal Practice & Procedure § 3953 (4th ed. 2008).
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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" (emphasis added). 18 U.S.C.
§ 1964(c). We assume for present purposes that appellate fees are
part of the fees calculable as costs under RICO; Dziemit does not
argue that this is not so, thereby waiving the argument, neither
party has briefed the issue, and we have found no authority to
counter our assumption. IFC proved below a RICO injury and defends
the finding on appeal. We therefore see no reason why Dziemit's
appeal bond may not include IFC's anticipated appellate fees.
Dziemit argues that to allow for the inclusion of
attorneys' fees in appeal bonds will chill unsuccessful litigants
from pursuing their right to appeal district court decisions. This
reasoning is unpersuasive. Any bond imposed pursuant to Rule 7
burdens an appeal to some degree, yet we presume that Rule 7 is
valid. See Adsani, 139 F.3d at 76. To the extent that a bond may
impermissibly burden an appeal, a litigant can move us to stay the
bond or to reduce its amount. Here, we are satisfied that
Dziemit's rights were not hampered. Although she submitted in her
motion to stay the bond that she was in poor financial shape, we
found that she did not demonstrate any prospect of irreparable harm
and she vowed to post the bond were her motion denied, which she
did.
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III. Conclusion
For the reasons stated herein, we affirm the district
court's judgment based on the jury verdict entered against Dziemit,
dismiss IFC's cross-appeal related to its Chapter 93A claim, and
affirm the district court's order imposing an appeal bond in the
amount of $10,000.
Costs are awarded to IFC. We remand this matter to the
district court for a determination as to the awarding of appellate
attorneys' fees.
So ordered.
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