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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 17-15705
Non-Argument Calendar
________________________
D.C. Docket Nos. 0:15-cv-61016-RNS; 15-bkc-01031-RBR
In re: SONEET R. KAPILA,
Debtor.
SONEET R. KAPILA,
Plaintiff-Appellant,
versus
DAVIS, GRAHAM & STUBBS LLP,
S. LEE TERRY,
Defendants-Appellees.
________________________
No. 18-10514
Non-Argument Calendar
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D.C. Docket Nos. 0:14-cv-61194-RNS; 0:12-bkc-19084-RBR
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In re: SONEET R. KAPILA,
Debtor.
SONEET R. KAPILA,
Plaintiff-Appellant,
versus
GRANT THORNTON LLP,
Defendant-Appellee.
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Appeals from the United States District Court
for the Southern District of Florida
________________________
(March 22, 2019)
Before MARCUS, WILLIAM PRYOR and GRANT, Circuit Judges.
PER CURIAM:
In this consolidated appeal, Soneet R. Kapila, the trustee for SMF Energy
Corporation, appeals the partial summary judgment in favor of its former auditor,
Grant Thornton LLP, and the summary judgment in favor of its former counsel, S.
Lee Terry and Davis, Graham & Stubbs LLP, in Kapila’s adversary proceedings
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that alleged the professional advisors’ conduct exacerbated the financial demise of
SMF. The district court ruled that Kapila’s complaints against Grant Thornton and
Davis Graham were barred by the doctrine of in pari delicto. We affirm.
I. BACKGROUND
SMF was a publicly-traded company that provided mobile fueling for
businesses that had fleets of vehicles and equipment, including the United States
Postal Service. In 2004, SMF began to overbill its customers. SMF padded
invoices with an “incremental volumetric allowance” that charged certain
customers for more fuel than they had received. SMF revealed to its customers the
existence of, but not the extent of, the incremental allowance.
Davis Graham and Grant Thornton provided professional services to SMF.
After SMF implemented the incremental allowance, it retained Terry of Davis
Graham to answer questions raised about the billing practice by the auditor for
SMF, KMPG Peat Marwick. In 2005, SMF replaced KPMG with Grant Thornton.
In 2011, a new director at SMF stopped the overbilling practice, and by 2012, SMF
was overwhelmed with debt. Kapila was appointed as trustee for SMF before it
petitioned for bankruptcy under Chapter 11 of the Bankruptcy Code.
In an adversary proceeding, Kapila filed a six-count complaint against Grant
Thornton. Kapila alleged that Grant Thornton “knew or had reason to know that
certain information contained in [SMF] records w[as] materially misstated or
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otherwise failed to provide [its] true financial condition” because it was apparent
that “SMF engaged in highly questionable and improper business practices.”
Kapila alleged that SMF “officers implement[ed] and perpetuat[ed] improper
billing practices that surreptitiously increased charges to [SMF] customers”; SMF
used “the Incremental Allowance” as a “‘revenue enhancing device’” and “applied
[it] to certain customers selected under the direction of some of the SMF’s
officers”; SMF knew the incremental allowance “violated the acceptable and
agreed upon terms of [SMF] contracts” and took “efforts and steps . . . to keep the
I.A. under the radar”; the “[c]hanges . . . [to] the amount of the I.A. charged . . .
were made at the whim of the Officers”; and “SMF’s main goal was to preserve the
I.A. and prevent its discovery by SMF’s customers.” Kapila sought to recover
monetary damages from Grant Thornton for negligence and accounting
malpractice, for negligent misrepresentation, and for aiding a breach of fiduciary
duties and Kapila also sought to recover transfers from SMF to Grant Thornton
between 2008 and 2012, to avoid transfers to Grant Thornton within the 90 days
preceding the petition for bankruptcy, and to have Grant Thornton turn over SMF
documents.
After Kapila and Grant Thornton filed cross-motions for partial summary
judgment, the district court concluded that there were no genuine issues of material
fact pertaining to the in pari delicto defense. The district court entered partial
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summary judgment in favor of Grant Thornton and against Kapila’s claims for
negligent accounting procedures, for misrepresenting the financial condition of
SMF, and for facilitating improper billing practices. The district court determined
that SMF was responsible for the overbilling by its officers because undisputed
evidence established the wrongdoing achieved its intended goal of boosting
company revenue; that SMF and Grant Thornton committed the same wrongdoing;
and that Grant Thornton was not required to admit any misdeeds to assert the in
pari delicto defense. Kapila filed a motion for reconsideration, which the district
court granted in part to explain that Kapila was subject to the in pari delicto
defense. Later, the district court granted Kapila’s motion to certify the order of
partial summary judgment and entered a final partial judgment against Kapila. See
Fed. R. Civ. P. 54(b).
In a separate adversary proceeding, Kapila filed a complaint of legal
malpractice against Davis Graham. Kapila alleged that, based on the “negligent
legal advice” provided by Davis Graham, SMF billed customers “[w]ith the
understanding that the [incremental allowance] was legal.” Kapila sought
compensatory damages as relief.
Kapila and Davis Graham also filed cross-motions for summary judgment
based on the in pari delicto defense. The bankruptcy court recommended a
judgment in favor of Davis Graham based on its “find[ing] that no genuine issues
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of material fact exist” after “[t]aking into account the District Court’s prior finding
of fraud” by SMF under “[t]he doctrine of issue preclusion” and, “if [that] analysis
[was] . . . insufficient, . . . finding for [Davis Graham] based on [Kapila’s] judicial
admissions . . . in the Grant Thornton complaint.” The district court entered
summary judgment in favor of Davis Graham and against Kapila on the grounds
that he was collaterally estopped from relitigating the culpability of SMF and that
its “guilt . . . far outweigh[ed] that of” Davis Graham.
Kapila appealed both judgments, and we granted the motion of Grant
Thornton and Davis Graham to consolidate the appeals after briefing.
II. STANDARD OF REVIEW
This appeal is governed by a single standard of review. We review a
summary judgment de novo. In re Optical Techs., Inc.,
246 F.3d 1332, 1335 (11th
Cir. 2001); Matter of Munford, Inc.,
97 F.3d 456, 458 (11th Cir. 1996). Likewise,
the issue “of whether collateral estoppel is available . . . is a legal question . . . [that
we] consider de novo.” Matter of McWhorter,
887 F.2d 1564, 1566 (11th Cir.
1989).
III. DISCUSSION
The district court correctly ruled that the wrongdoing of the officers of SMF
should be imputed to their corporate employer. Under Florida law, which the
parties agree governs the application of the in pari delicto defense, wrongdoing by
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a corporate officer is imputed to the company so long as the officer acts within the
scope of his employment. See O’Halloran v. Pricewaterhousecoopers LLP,
969
So. 2d 1039, 1045 (Fla. Dist. Ct. App. 2007). While the presence of an innocent
decision maker can provide a basis to argue that an officer acted adversely to the
interest of the corporation, when the officer’s wrongdoing is calculated to benefit
the corporation, it “is in no position to invoke the adverse interest exception” to
prevent the imputation of wrongdoing to it.
Id. at 1045–46. In other words, an
officer who acts to further the interests of the corporation necessarily is acting
within the scope of his employment. See
id. at 1045. Because Kapila admits that
the SMF officers who overbilled customers acted with the intent to increase
company profits, the district court correctly imputed those officers’ wrongdoing to
SMF.
The district court did not err in determining that Grant Thornton and SMF
acted in pari delicto by engaging in the same wrongdoing that Kapila alleged Grant
Thornton committed. “The equitable defense of in pari delicto, which literally
means ‘in equal fault,’ is rooted in the common-law notion that a plaintiff’s
recovery may be barred by his own wrongful conduct.” Pinter v. Dahl,
486 U.S.
622, 632 (1988); see Earth Trades, Inc. v. T & G Corp.,
108 So. 3d 580, 583 (Fla.
2013). To apply the defense, “both parties [must act] in delicto, concurring in an
illegal act,” and in pari, having “equal or mutual fault.” Earth Trades,
108 So. 3d
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at 583 (quoting Bateman Eichler, Hill Richards, Inc. v. Berner,
472 U.S. 299, 306–
07 (1985)). Kapila alleged that the overbilling by SMF continued because Grant
Thornton was “willfully blind to the pervasive and improper billing practices,”
failed to undertake “any meaningful steps to stop the practice” or “to uncover the
ongoing series of improper business practices and irregularities being engaged in,”
“negligently misrepresented that . . . annual financial statements . . . fairly
represented the true financial condition of [SMF],” and “rendered substantial
assistance in regard to the breaches of fiduciary duties of [SMF] officers . . . .” As
the district court explained, “[b]oth parties . . . were, according to [Kapila’s] own
allegations, certainly ‘engaged in the same wrongdoing,’: that is, the improper
overbilling scheme and financial misrepresentations.”
The district court also correctly applied the doctrine of collateral estoppel to
bar Kapila from relitigating the culpability of SMF in the Davis Graham
proceeding. Under Florida law, “when [a] party asserts collateral estoppel [based
on an earlier federal judgment], the state courts should apply federal issue
preclusion principles.” Aronowitz v. Home Diagnostics, Inc.,
174 So. 3d 1062,
1065 (Fla. Dist. Ct. App. 2015). Under federal law, collateral estoppel bars a party
from relitigating an issue of fact that has been determined in an earlier action so
long as “the party against whom the earlier decision is asserted . . . had a full and
fair opportunity to litigate the issue in the earlier proceeding” and the issue at stake
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is “identical to the one involved in the prior litigation,” was “actually litigated in
the prior suit,” and “the determination . . . [was] a critical and necessary part of the
judgment in that action.”
McWhorter, 887 F.2d at 1566. The Grant Thornton
proceeding satisfied all the factors required to collaterally estop Kapila from
arguing that SMF was inculpable in the Davis Graham proceeding. In the Grant
Thornton proceeding, after Kapila admitted that SMF officers intentionally
overbilled customers, the district court ruled that the officers’ wrongdoing should
be imputed to SMF. And the Davis Graham proceeding turned on the same issue of
corporate culpability. Because the district court correctly determined that the
doctrine of collateral estoppel barred Kapila from relitigating the issue of corporate
culpability, we need not address the alternative finding that the allegations in
Kapila’s complaint against Grant Thornton constituted judicial admissions.
Kapila argues that the doctrine of in pari delicto does not bar his complaint
against Davis Graham because a material factual dispute exists whether the law
firm was more culpable than SMF, but we disagree. Kapila alleged that Davis
Graham provided “negligent legal advice” regarding the legality of the incremental
allowance, and he is bound by the determination in the Grant Thornton proceeding
that SMF acted intentionally. So the parties share responsibility for the
wrongdoing. See Turner v. Anderson,
704 So. 2d 748, 749–51 (Fla. Dist. Ct. App.
1988) (affirming summary judgment in favor of attorney and his law firm on the
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ground that the doctrine of in pari delicto barred client, who admittedly testified
falsely, from suing attorneys for advising him to commit perjury); see also Banco
Nacional De La Vivienda v. Cooper,
680 F.2d 727, 730 (11th Cir. 1982) (“[W]hen
the choice is between the two—fraud and negligence—negligence is less
objectionable than fraud.”) (quoting Besett v. Basnett,
389 So. 2d 995, 998 (Fla.
1980)).
IV. CONCLUSION
We AFFIRM the partial summary judgment in favor of Grant Thornton and
the summary judgment in favor of Davis Graham.
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