In Re: Amer Council ( 1997 )

  •                              REVISED
                     United States Court of Appeals,
                              Fifth Circuit.
                         Nos. 96-11332, 96-11439.
       Dorothy L. OZEE, acting individually as attorney in fact for
    Louise T. Peter, and as next friend for Louise T. Peter, on behalf
    of Louise T. Peter individually and all others similarly situated,
       Boyd L. Richie, guardian of the estate of Louise T. Peter,
    The AMERICAN COUNCIL ON GIFT ANNUITIES, INC., individually and on
    behalf of its members, sponsors and all other similarly situated to
    them, and as successor to The Committee on Gift Annuities, an
    unincorporated association, et al., Defendants-Appellants,
           Dan Morales, Attorney General of Texas, Appellant.
                              April 9, 1997.
    Appeals from the United States District Court for the Northern
    District of Texas.
    Before REAVLEY, SMITH and EMILIO M. GARZA, Circuit Judges.
         JERRY E. SMITH, Circuit Judge:
         This consolidated case consists of an appeal by the various
    above-listed defendants from the district court's denial of a
    motion to dismiss, a separate appeal by Northwestern University
    challenging the denial of summary judgment, a petition by the
    defendants for a writ of mandamus, an additional appeal by Texas
    Attorney General Dan Morales from the denial of his motion to
    intervene as of right, and a motion by Boyd Richie to dismiss the
    defendants' and Northwestern's appeals.    For the reasons stated
    below, we dismiss the defendants' and Northwestern's appeals for
    want of jurisdiction, deny the petition for mandamus, reverse the
    denial of intervention, and impose sanctions on appeal.
         This litigation stems from charitable donations by Louise
    Peter, a ninety-six-year-old woman, to the Lutheran Foundation of
    Texas, one of the many defendants.               Peter, who suffers from
    dementia and Alzheimer's disease, inherited a substantial fortune
    from her brother late in life.       Her guardian, Boyd Richie, alleges
    that soon thereafter, the leaders of the Lutheran Church—Missouri
    Synod began unscrupulously pressuring Peter to let them manage her
    money.    After resisting for years, she eventually invested $1.7
    million with the Lutheran Foundation of Texas.             Approximately $1.5
    million of this went into a revocable management trust and a
    charitable remainder unitrust;        the remaining $200,000 went to buy
    charitable gift annuities, the financial products that are the
    epicenter of this lawsuit.
             Charitable   gift    annuities    are   hybrids    of   altruism   and
    capitalism.     To purchase one, the donor or "annuitant" writes a
    check to a charitable organization.              The charity, in return,
    promises to pay the annuitant a fixed stream of income for the
    remainder of his life.         Precisely how much the annuitant will
    receive per year depends primarily on the size of the "donation"
    and the annuitant's age—the older he is, the more he receives,
    because the older he is, the less the time is during which the
    charity expects to have to pay the annuity.
             As   with   bonds,   the   annual   payout   is     expressed   as   a
    percentage, which is referred to as the charitable gift annuity
    rate.     Unlike with bonds, however, the principal on which this
    "interest" is being paid becomes the property of the charity when
    the check is handed over.      In other words, the annuitant trades a
    "donation" to a charity for a guaranteed stream of income that
    continues as long as he lives.1
         In many respects, then, charitable gift annuities are quite
    similar    to   the   commercial   annuities   sold   by   life   insurance
    companies. As with commercial annuities, an annuitant who outlives
    his actuarial life expectancy stands to reap a substantial profit,
    the gift portion of the "donation" notwithstanding. The difference
    is that charitable gift annuities also provide the annuitant a
    large tax deduction and the satisfaction of having given to the
    charity of his choice, advantages that the plaintiffs in this case
    contend make charitable gift annuities competitive with other
    financial products.
         Enter the principal defendant, the American Council on Gift
    Annuities, Inc. (the "Council").      According to Richie, the Council
    was formed years ago to suppress competition among charities in
    setting gift annuity rates, which competition apparently would have
    had the undesirable effect of causing potential donors to shop for
          For tax purposes, the Internal Revenue Service ("IRS")
    considers the initial transfer that starts the charitable gift
    annuity to be a "bargain sale," i.e., a sale of property for less
    than its fair market value. The difference between actuarially
    determined fair market value and the transfer price is considered
    a gift, and the gift portion of the transfer is required to be at
    least 10% of the total. Thus the IRS breaks the transaction in
    two: Part of the transfer is deemed to have purchased a normal
    commercial annuity that yields taxable income, and part is a
    tax-deductible charitable gift.
    the best rate.     The Council purportedly sets rates that it warns
    charities not to exceed, actively monitors compliance, and lobbies
    against   government      regulation   of   the   charitable     gift   annuity
    industry.      Richie thus alleges that the Council is the hub of a
    vast, sinister price-fixing conspiracy comprising charities across
    the country.
          Dorothy Ozee, Peter's grand-niece and next friend, filed suit
    in   federal   district    court   alleging   (1)   that   the    Council   and
    numerous other organizations (hereinafter, "the defendants") had
    violated § 1 of the Sherman Act by agreeing to fix rates of return
    on charitable gift annuities;          and (2) a number of supplemental
    Texas state law claims, including illegal sale of annuities and
    breach of fiduciary duty.          The defendants moved to dismiss the
    antitrust claims on the ground that charitable donations do not
    constitute "trade or commerce" within the meaning of the Sherman
    Act.2 The district court denied the motion to dismiss and granted
    partial summary judgment in Peter's favor on one state law claim of
    illegal sale of annuities.         A Texas state court later appointed
    Richie guardian of Peter's estate, so Ozee's name was dropped from
    the suit, and Richie was substituted as the named plaintiff.
          Perhaps recognizing that the denial of their first motion to
    dismiss did not bode well for their chances of success on the
    merits, the defendants decided to attack their problem from another
    angle:    They persuaded both Congress and the Texas Legislature to
          Section 1 of the Sherman Act provides in relevant part that
    "[e]very contract, combination in the form of trust or otherwise,
    or conspiracy, in restraint of trade or commerce among the
    several States, or with foreign nations, is declared to be
    illegal...." 15 U.S.C. § 1.
    pass bills specifically designed to squelch this suit. The federal
    bill, which the President signed into law on December 8, 1995, was
    entitled the Charitable Gift Annuity Antitrust Relief Act (the
    "Relief Act"), and provided that
         it shall not be unlawful under any of the antitrust laws, or
         under a State law similar to any of the antitrust laws, for 2
         or more persons described in section 501(c)(3) of Title 26
         that are exempt from taxation under section 501(a) of Title 26
         to use, or to agree to use, the same annuity rate for the
         purpose of issuing 1 or more charitable gift annuities.
    15 U.S.C. § 37(a).         Congress made the Relief Act explicitly
    retroactive. Charitable Gift Annuity Antitrust Relief Act of 1995,
    Pub.L. No. 104-63, § 4, 109 Stat. 687, 688 (1995).                The Texas
    Legislature   passed     parallel   legislation   designed   to   foreclose
    Richie's state law claims by retroactively allowing nonprofit
    organizations to both sell annuities and operate trusts.           See TEX.
    BANKING CODE ANN. art.   342-1113(3) (Vernon Supp.1997);3     TEX.REV.CIV.
    STAT. ANN. art. 1396-2.31 (Vernon Supp.1997);4 TEX. INS.CODE ANN. art.
    1.14-1A § 2(a)-(b) (Vernon Supp.1997).5
          "The provisions of this chapter shall not affect or apply
    to ... (3) a corporation serving as trustee of a charitable trust
    as provided by Article 2.31, Texas Non-Profit Corporation Act
    (Article 1396-2.31, Vernon's Texas Civil Statutes)." TEX. BANKING
    CODE ANN. art. 342-1113, -1113(3) (Vernon Supp.1997).
          "A corporation that is described by Section 501(c)(3) or
    170(c), Internal Revenue Code of 1986, or a corresponding
    provision of a subsequent federal law, may serve as the trustee
    of a trust: (1) of which the corporation is a beneficiary; or
    (2) benefiting another organization described by one of those
    sections of the Internal Revenue Code of 1986, if the service as
    trustee is in furtherance of the purposes for which the
    corporation was formed." TEX.REV.CIV. STAT. ANN. art. 1396-2.31
    (Vernon Supp.1997) (footnote omitted).
          "Sec. 2. (a) The issuance of a qualified charitable gift
    annuity does not constitute engaging in the business of insurance
    in this state. (b) A charitable gift annuity issued before
    September 1, 1995, is a qualified charitable gift annuity for
         Armed with this new legislation, the defendants filed another
    motion to dismiss and, in the case of defendant Northwestern
    University ("Northwestern"), a motion for summary judgment.                 In
    response,   Richie    both   challenged   some    of   the   defendants'    §
    501(c)(3)   exemptions    and   amended   his    complaint    to   allege    a
    price-fixing conspiracy between entities that fit the Relief Act's
    exemption and entities that do not.6        The district court issued
    thirty-five orders, the most important of which, dated September
    30, 1996, denied the defendants' motion to dismiss, Northwestern's
    motion for summary judgment, and Morales's motion to intervene as
    of right.   See Richie v. American Council on Gift Annuities, 
    943 F. Supp. 685
     (N.D.Tex.1996).       It is from this second refusal to
    dismiss that the defendants now appeal.
         In addition to the defendants' collective appeal from the
    refusal to dismiss, Northwestern individually appeals the denial of
    summary judgment.     Morales brings a separate interlocutory appeal,
    arguing that he should have been allowed to intervene as of right
    under FED. R. CIV. P. 24(a).     The defendants (again, collectively)
    petition for a writ of mandamus, requesting dismissal of both the
    state and the federal claims on the grounds that the district court
    abused its discretion by (1) refusing to grant the second motion to
    dismiss; (2) asserting jurisdiction to consider whether defendants
    meet the Relief Act's requirements for antitrust exemption;             (3)
    purposes of     this article and Article 1.14-1 of this code, and the
    issuance of     that charitable gift annuity does not constitute
    engaging in     the business of insurance in this state." TEX.
    INS.CODE ANN.   art. 1.14-1A § 2(a)-(b) (Vernon Supp.1997).
          For convenience, we henceforth refer to such conspiracies
    as "hybrid" conspiracies.
    refusing to grant the first motion to dismiss;              and (4) refusing to
    enter summary judgment on the Texas state law issues.                  Finally,
    Richie moves this court to dismiss the defendants' appeals on
    numerous grounds, most notably for want of appellate jurisdiction.
           The central issue is this court's jurisdiction to hear the
    appeal.     The statute codifying the final judgment rule, 28 U.S.C.
    §   1291,   provides    that   "[t]he     courts    of   appeals    shall   have
    jurisdiction of appeals from all final decisions of the district
    courts of the United States."            Appeal is thereby precluded from
    decisions that are "tentative, informal, or incomplete," as well as
    from "fully consummated decisions" that are "but steps towards
    final judgment in which they will merge."                  Cohen v. Beneficial
    Indus. Loan Corp., 
    337 U.S. 541
    , 546, 
    69 S. Ct. 1221
    , 1225, 
    93 L. Ed. 1528
     (1949).    As the refusal to dismiss is obviously not a "final
    decision," Newball v. Offshore Logistics Int'l, 
    803 F.2d 821
    , 824
    (1986) (citing Fluor Ocean Servs. v. Hampton, 
    502 F.2d 1169
    , 1170
    (5th Cir.1974)), the only way the defendants can hope to assert
    jurisdiction is through the collateral order doctrine.
           The collateral order doctrine permits appeal of non-final
    decisions    that    "fall   in   that    small    class    [of   interlocutory
    decisions] which finally determine claims of right separable from,
    and collateral to, rights asserted in the action, too important to
    be denied review and too independent of the cause itself to require
    that appellate consideration be deferred until the whole case is
    adjudicated."       Cohen, 337 U.S. at 546, 69 S.Ct. at 1225-26.            The
    doctrine    thus   allows     review   of   orders   that   (1)   conclusively
    determine the disputed question;             (2) resolve an issue that is
    completely separate from the merits of the action;                and (3) would
    be effectively unreviewable on appeal from a final judgement.               See
    Digital Equip. Corp. v. Desktop Direct, Inc., 
    511 U.S. 863
    , 867,
    114 S. Ct. 1992
    , 1995-96, 
    128 L. Ed. 2d 842
     (1994);              see also Cohen,
    337 U.S. at 545-47, 69 S.Ct. at 1224-26.                    As its stringent
    requirements indicate, the collateral order doctrine is not to be
    applied liberally.           Rather, the doctrine "is "extraordinarily
    limited' in its application."          Pan Eastern Exploration Co. v. Hufo
    798 F.2d 837
    ,    839   (5th    Cir.1986)   (citation    omitted).
    Moreover—and particularly apposite to this case—appealability under
    the collateral order doctrine must be determined "without regard to
    the chance that the litigation might be speeded, or a "particular
    injustice' averted by a prompt appellate court decision."               Digital
    Equip., 511 U.S. at 868, 114 S.Ct. at 1993.
             As a general matter, the refusal to dismiss an action under
    FED. R. CIV. P. 12(b)(6) is not appealable.7                 Recognizing the
    predicament in which these decisions place them, the defendants
          See, e.g., Morin v. Caire, 
    77 F.3d 116
    , 119 (5th Cir.1996)
    ("Ordinarily, this court does not have jurisdiction over the
    denial of a Rule 12(b)(6) motion to dismiss for no cause of
    action, because such an order is interlocutory in nature.");
    Holloway v. Walker, 
    765 F.2d 517
    , 525 (5th Cir.) (same), cert.
    474 U.S. 1037
    106 S. Ct. 605
    88 L. Ed. 2d 583
    Accord Briggs & Stratton v. Local 232 Int'l Union, 
    36 F.3d 712
    714 (7th Cir.1994) ("To the extent the union wants us to review
    the district court's failure to dismiss the case outright, it
    hasn't a leg to stand on."), cert. denied, --- U.S. ----, 
    115 S. Ct. 1998
    131 L. Ed. 2d 1000
     (1995); Hill v. City of New York,
    45 F.3d 653
    , 663 (2d Cir.1995); Figueroa v. United States, 
    7 F.3d 1405
    , 1408 (9th Cir.1993), cert. denied, 
    511 U.S. 1030
    114 S. Ct. 1537
    128 L. Ed. 2d 190
    argue that the Relief Act gives them an immunity from suit and that
    the refusal to dismiss denied them that immunity, as denials of
    motions to dismiss on the basis of qualified or absolute immunity
    frequently are appealable as collateral orders.8
         The defendants' immunity arguments completely miss the mark,
    however.      After the Relief Act was passed, Richie amended his
    complaint to allege that some of the defendants had procured their
    26 U.S.C. § 501(c)(3) tax-exemption determination letters by fraud,
    and Richie added some plainly non-charitable defendants so as to
    allege    a   conspiracy   between   §   501(c)(3)   exempt   entities   and
    non-exempt entities.9 Accordingly, the order denying the motion to
    dismiss rested on two grounds:       (1) That Richie has at least stated
    a claim as to the defendants he claims are non-exempt;             and (2)
    that he also states a claim insofar as he alleges a § 1 conspiracy
    between exempt and non-exempt organizations.
             This second ground is important, for even assuming that the
    Relief Act creates an immunity from suit rather than a substantive
    rule of decision on the merits (a question we do not reach), the
    defendants may not reap its benefits.          As the Relief Act covers
    only agreements between "2 or more persons described in section
    501(c)(3) of Title 26 that are exempt from taxation under section
          See Digital Equip., 511 U.S. at 871, 114 S.Ct. at 1997;
    Williams v. Collins, 
    728 F.2d 721
    , 724-26 (5th Cir.1984); see
    also Mitchell v. Forsyth, 
    472 U.S. 511
    , 524, 
    105 S. Ct. 2806
    86 L. Ed. 2d 411
     (1985); Nixon v. Fitzgerald, 
    457 U.S. 731
    102 S. Ct. 2690
    , 2696-97, 
    73 L. Ed. 2d 349
          Besides the obviously eleemosynary organizations, Richie's
    ever-expanding list of defendants includes a number of law firms,
    insurance companies, and commercial banks that apparently are
    associated with the administration of charitable gift annuities.
    501(a)    of   Title   26   ...,"   its   plain   language      does   not    reach
    conspiracies involving both exempt and non-exempt entities.
          The defendants argue that the statute means something other
    than what it says, citing a House report suggesting that the
    exemption was intended to extend to attorneys, consultants, and
    other professionals retained by a § 501(c)(3) entity. See H.R. REP.
    NO. 104-336 (1995), reprinted in 1995 U.S.C.C.A.N. 632, 637.                     We
    find this suggestion thoroughly unpersuasive.              As we stated above,
    the plain terms of the Relief Act cover conspiracies by § 501(c)(3)
    organizations     only;       had   Congress      wished   to    exempt      hybrid
    agreements, it easily could have done so.           As the plain language of
    the statute is unambiguous, we need not concern ourselves with its
    legislative history, which appears not to support the defendants'
    proposition, in any event.10 See United States v. Ron Pair Enters.,
    489 U.S. 235
    , 241, 
    109 S. Ct. 1026
    , 1030, 
    103 L. Ed. 2d 290
    United States v. Barlow, 
    41 F.3d 935
    , 942 (5th Cir.1994), cert.
          Even were we to look beyond the plain language of the
    Relief Act, our conclusion that hybrid conspiracies are outside
    its reach would still be supported by the rule of forfeiture.
    Under this rule, entities normally exempt from the antitrust laws
    lose their exemption when they conspire with non-exempt entities.
    See Group Life & Health Ins. Co. v. Royal Drug Co., 
    440 U.S. 205
    99 S. Ct. 1067
    , 1083, 
    59 L. Ed. 2d 261
     (1979). In Hartford
    Fire Ins. Co. v. California, 
    509 U.S. 764
    , 782-84, 
    113 S. Ct. 2891
    , 2901-03, 
    125 L. Ed. 2d 612
     (1993), the Court's most recent
    pronouncement on this subject, the Court drew a distinction
    between status-based and conduct-based exemptions, finding the
    rule of forfeiture applicable to the former but not necessarily
    to the latter. The exemption created by the Relief Act is based
    on both status ("persons described in section 501(c)(3)") and
    conduct ("to use, or to agree to use"), and is thus much more
    like the Capper-Volstead Act, which has both status and conduct
    elements, than it is like the McCarran-Ferguson Act, which
    creates a purely conduct-based exemption. Status is the key, and
    because Richie is alleging a conspiracy in which some entities
    have the requisite status-based exemption and some do not, the
    rule applies.
    denied, --- U.S. ----, 
    115 S. Ct. 1389
    131 L. Ed. 2d 241
    , and cert.
    denied, --- U.S. ----, 
    115 S. Ct. 1804
    131 L. Ed. 2d 730
    , and cert.
    denied, --- U.S. ----, 
    115 S. Ct. 1804
    131 L. Ed. 2d 730
    Dillon v. Mississippi Military Dep't, 
    23 F.3d 915
    , 919 n. 8 (5th
               It should be evident, from the above, that because the
    refusal to dismiss was predicated on Richie's claims of non-exempt
    defendants and a hybrid conspiracy involving them, the matters it
    addressed were neither conclusively determined nor separate from
    the merits of the case.          To the contrary, the district court went
    out of its way to state that it would reconsider the defendants'
    claims of exemption as soon as there was sufficient evidence to do
    so.   Given that the ruling was based on the possibility of a hybrid
    conspiracy, we need not consider whether the Relief Act grants §
    501(c)(3) organizations some sort of immunity or right not to stand
    trial. It follows that because the denial of the motion to dismiss
    did not actually require a finding of no immunity, it is not a
    collateral       order,   and   we   lack    jurisdiction   to   entertain    the
               The   charitable     defendants    protest   that   Richie   may   not
          Even were we to assume arguendo that the Relief Act
    legalizes conspiracies between exempt and non-exempt entities,
    there would not be an appealable immunity issue, as the bases on
    which Richie has challenged the defendants' § 501(c)(3)
    determinations are factual. See Hale v. Townley, 
    45 F.3d 914
    918 (5th Cir.1995) ("An appellate court has jurisdiction to
    review an interlocutory denial of qualified immunity only to the
    extent that it "turns on an issue of law.' ") (quoting Mitchell,
    472 U.S. at 530, 105 S.Ct. at 2817); Feagley v. Waddill, 
    868 F.2d 1437
    , 1439 (5th Cir.1989) (same).
    challenge their exempt status, because the district court lacks
    jurisdiction to reconsider the IRS's determination that they are §
    501(c)(3) entities.      In effect, they contend that their letters
    from the IRS finding them to be § 501(c)(3) entities for tax
    purposes   grant   an   unassailable,    irrevocable   status    as   exempt
    organizations under the Relief Act, and that no one may litigate
    this issue.   Even were we to agree with this, the fact that Richie
    has alleged a conspiracy between exempt and non-exempt entities
    would deprive us of jurisdiction to hear this appeal.           Our want of
    jurisdiction, moreover, precludes us from addressing the question
    of the § 501(c)(3) determination.
         Northwestern University separately appeals the denial of its
    motion for summary judgment, arguing that it has incontrovertibly
    demonstrated that it is exempt under the Relief Act. As with the
    defendants' motion to dismiss, Northwestern's motion was denied by
    the September 30, 1996, memorandum opinion and order on the bases
    described above.    See Richie, 943 F.Supp. at 687-88 n. 1. Also as
    with the motion to dismiss, the order specifically stated—in
    boldface, no less—that it was denying Northwestern's motion without
    prejudice.    The court went out of its way to note that further
    discovery was necessary before it could "fairly and correctly rule"
    on the summary judgment motions before it.
          Ordinarily, a denial of summary judgment is an unappealable
    interlocutory order.      Aldy v. Valmet Paper Mach., 
    74 F.3d 72
    , 75
    (5th Cir.), cert. denied, --- U.S. ----, 
    117 S. Ct. 68
    136 L. Ed. 2d 29
     (1996);    Schaper v. City of Huntsville, 
    813 F.2d 709
    , 713 (5th
    Cir.1987).       The denial of Northwestern's motion falls squarely
    within this general rule, for the obvious lack of a conclusive and
    unreviewable determination renders the collateral order doctrine
    inapplicable.         To the extent Northwestern argues that the district
    court disallowed it an immunity defense, its argument is foreclosed
    by the same factual issues that precluded the motion to dismiss:
    Richie's allegations that some of the defendants are non-exempt and
    that exempt       entities      conspired    with    non-exempt       ones.    As    we
    previously have held, "if disputed factual issues material to
    immunity are present, the district court's denial of summary
    judgment sought on the basis of immunity is not appealable."
    Feagley, 868 F.2d at 1439.           In short, then, we lack jurisdiction to
    hear Northwestern's claims for largely the same reasons that we
    lack jurisdiction to hear the defendants'.
         In     addition     to    the   above   appeals,    the    defendants12    also
    petition for a writ of mandamus, alleging that the district court
    abused its discretion in (1) refusing to grant the second motion to
    dismiss; (2) asserting jurisdiction to consider whether defendants
    meet the Relief Act's requirements for antitrust exemption;                         (3)
    refusing to grant the first motion to dismiss;                 and (4) refusing to
    enter summary judgment on the Texas state law issues.                    The relief
    they seek is dismissal with prejudice of Richie's federal and state
              Most   of    the    petition   simply     recycles    the    arguments     of
          Although they are technically petitioners with respect to
    this portion of the case, we will continue to refer to the
    defendants as defendants in the interests of clarity.
    defendants' appeal in the substantially stricter mandamus context.
    Mandamus is "an extraordinary remedy for extraordinary causes,"
    United States v. Denson, 
    603 F.2d 1143
    , 1146 (5th Cir.1979) (en
    banc), and is not intended as a "substitute for appeal," In re
    American Airlines, 
    972 F.2d 605
    , 608 (5th Cir.1992), cert. denied,
    507 U.S. 912
    113 S. Ct. 1262
    122 L. Ed. 2d 659
     (1993).           It is not
    justified merely because "hardship may result from delay or from an
    unnecessary trial," In re Fibreboard Corp., 
    893 F.2d 706
    , 707 (5th
    Cir. 1990).     Rather, the writ issues only where the district court
    has committed a "clear abuse of discretion" or engaged in "conduct
    amounting to "usurpation of power.' "         Mallard v. United States
    District Court, 
    490 U.S. 296
    , 309, 
    109 S. Ct. 1814
    , 1822, 
    104 L. Ed. 2d 318
     (1989).      To succeed, the defendants must show (1) that
    they lack adequate alternative means to obtain the relief they seek
    and (2) that their right to issuance of the writ is "clear and
    indisputable."      Mallard, 490 U.S. at 309, 109 S.Ct. at 1822;
    American Airlines, 972 F.2d at 608;       Fibreboard, 893 F.2d at 707.
             This the defendants cannot show.           As to the first two
    challenged actions—the refusal to grant the second motion to
    dismiss and the assertion of jurisdiction over the defendants'
    status    as   exempt   entities—our   discussion    above   explains   why
    defendants' right to the relief they seek is anything but "clear
    and indisputable."
             They fare little better on the refusal to grant the first
    motion to dismiss, which was predicated on a finding that the
    conduct challenged in this case is "trade or commerce" within the
    meaning of the Sherman Act. As Richie points out, the "exchange of
    money     for   services,      even   by   a    nonprofit    organization,        is   a
    quintessential commercial transaction."                   United States v. Brown
    5 F.3d 658
    , 666 (3d Cir.1993).
         The purchasers of charitable gift annuities pay money and
    receive     benefits     in    return:          the    annuity,     substantial    tax
    advantages, and the satisfaction of having given to charity.                           As
    the IRS recognizes, at least part of the transaction is undoubtedly
    commercial, and the transaction as a whole is a far cry from the
    sort of "antithesis of commercial activity" that it need be in
    order to fall outside the scope of the Sherman Act. Brown, 5 F.3d
    at 666.
            Nor can the defendants succeed in their arguments regarding
    the summary judgment on Richie's state law claims.                      Twenty days
    after     the   district      court   entered     that    summary     judgment,    the
    governor signed into law two pieces of legislation that purport to
    "clarify"       the   Texas    Insurance       Code,   the   Free    Enterprise    and
    Antitrust Act, and the Deceptive Trade Practices Act, so as to
    leave no doubt that charities need not be licensed insurance
    companies in order to issue charitable gift annuities.13                    Much as
    it might want to, however, the legislature cannot reverse a federal
    district court. The defendants, the Texas legislature, and the two
    state courts that have construed this legislation have consistently
    vacillated as to whether H.B. 3104 merely "clarified," or instead
    retroactively changed the law.             They appear to want it both ways:
          See TEX. BANKING CODE ANN. art. 342-1113, -1113(3) (Vernon
    Supp.1997); TEX.REV.CIV. STAT. ANN. art. 1396-2.31 (Vernon
    Supp.1997); TEX. INS.CODE ANN. art. 1.14-1A, § 2(a)-(b) (Vernon
    They would like retroactivity to get rid of Richie's suit, and
    "clarification" so as not to run afoul of the "open courts"
    provision of TEXAS CONST. art. 1, § 13.
          Fortunately, we need not delve into matters of state law,
    federalism, and separation of powers to resolve this issue, for the
    defendants have failed to demonstrate that they meet the first
    requirement for mandamus relief, the unavailability of alternative
    means.    The summary judgment they complain of is addressable both
    through certified appeal under 28 U.S.C. § 1292(b) and through
    direct appeal after final judgment.      See In re El Paso Elec. Co.,
    77 F.3d 793
    , 795 (5th Cir.1996).    The grant of summary judgment was
    neither an abuse of discretion nor an "usurpation of power," and
    whatever right petitioners might have to relief on the merits is
    far from being "clear and indisputable."      The petition for writ of
    mandamus is denied.
             We have jurisdiction over the appeal of the denial of
    intervention as of right under FED. R. CIV. P. 24(a), because such
    orders are appealable collateral orders.       See Edwards v. City of
    78 F.3d 983
    , 992 (5th Cir.1996) (en banc) (citing Ceres
    Gulf v. Cooper, 
    957 F.2d 1199
    , 1202 n. 5 (5th Cir.1992)).           Our
    standard of review is de novo.     Id. at 995.
          Morales's brief bitterly recounts how he has been left out of
    this case.    As Attorney General, he is charged with representing
    the public interest in charitable trusts.      Under TEX. PROP.CODE ANN.
    §   123.003   (Vernon   1995),   interested   parties   in   proceedings
    involving charitable trusts must give him notice of the proceeding
    by   sending    him    "a   certified   copy     of   the    petition    or   other
    instrument initiating the party's involvement in the proceeding."
    Richie did this, and Morales received his notice on January 9,
          After that, however, things appear to have gone downhill.
    Morales apparently was not served with most of the pleadings, and
    he claims that he was unaware of most of the activity in this case
    until April 1995, at which time he learned that Richie had filed
    the motion for partial summary judgment on his state law claims.
    On   April     18,    1995,   Morales    moved    for       leave   to   intervene
    permissively, and the district court denied his request shortly
    thereafter.     He filed two motions to reconsider this ruling on May
    16, 1995, and September 25, 1995, respectively.
          On October 17, 1995, Morales filed a second motion for leave
    to intervene, this time both permissively and as of right.                      On
    September 30, 1996, nearly a year later, the district court denied
    this motion as moot, for the grant of partial summary judgment on
    Richie's state law claims by then had disposed of all the issues in
    which the court believed Morales might have an interest.                   Morales
    now appeals, challenging only the denial of his motion to intervene
    as of right.
            Morales argues that the district court erred because he meets
    all the requirements for rule 24(a) intervention:                        He timely
    applied;     he has an interest in the charitable gift annuities and
    trusts that are the subject of this suit;             disposition of the case
    without him would impair his ability to protect that interest; and
    his interest is not adequately represented by the existing parties.
    See FED. R. CIV. P. 24(a);      Sierra Club v. Espy, 
    18 F.3d 1202
    , 1204-
    05 (5th Cir.1994);     6 JAMES WM. MOORE   ET AL.,   MOORE'S FEDERAL PRACTICE §
    24.03[1][b], at 24-23 (3d ed.1997).            The test is conjunctive;
    failure to meet any one of these requirements means that Morales
    may not intervene as a matter of right.          Sierra Club, 18 F.3d at
    1205 (citing Kneeland v. National Collegiate Athletic Ass'n, 
    806 F.2d 1285
    , 1287 (5th Cir.), cert. denied, 
    484 U.S. 817
    108 S. Ct. 72
    98 L. Ed. 2d 35
     (1987)).        We agree, however, that he meets each
    of these criteria.
          The   first   part   of   the   intervention    calculus    is   whether
    Morales's motion was timely filed.         The test for timeliness under
    Rule 24(a) requires us to consider
    (1) The length of time during which the would-be intervenor
        actually knew or reasonably should have known of his interest
        in the case before he petitioned for leave to intervene;
    (2) The extent of the prejudice that the existing parties to the
         litigation may suffer as a result of the would-be intervenor's
         failure to apply for intervention as soon as he actually knew
         or reasonably should have known of his interest in the case;
    (3) The extent of the prejudice that the would-be intervenor may
         suffer if his petition for leave to intervene is denied; and
    (4) The existence of unusual circumstances militating either for or
         against a determination that the application is timely.
    Edwards, 78 F.3d at 1000. Accord 6 MOORE, supra, § 24.21[3], at 24-
    71.   As we stated in Sierra Club,
          [This] analysis is contextual;        absolute measures of
          timeliness should be ignored. The requirement of timeliness
          is not a tool of retribution to punish the tardy would-be
          intervenor, but rather a guard against prejudicing the
          original parties by the failure to apply sooner.    Federal
          courts should allow intervention where no one would be hurt
          and greater justice could be attained.
    18 F.3d at 1205 (citations and internal quotations omitted).
         Richie attacks Morales's motion on the ground that it is
    untimely, citing the district court's rejection of his earlier
    motion to intervene permissively as untimely.       Because the first
    motion was untimely when filed on April 18, 1995, Richie reasons,
    the second motion cannot possibly have been timely when filed on
    October 17 of that year.
          This   is    incorrect.   We   have   consistently   held   that   a
    "district court should apply a more lenient standard of timeliness
    if the would-be intervenor qualifies for intervention under section
    (a) [of Rule 24] than if he qualified for intervention under
    section (b)."     Stallworth v. Monsanto Co., 
    558 F.2d 257
    , 266 (5th
    Cir.1977);      see also McDonald, 430 F.2d at 1073.         Given the
    difference in standards and the fact that this Court reviews
    timeliness de novo, the determination that Morales's first motion
    was untimely has little or no bearing on the timeliness of his
    second motion.
          Applying the test for timeliness, we find that the first of
    the four factors is neutral.     It does appear that Morales waited
    over nine months from the time that he received his statutorily
    mandated notice to the time that he moved to intervene as of right.
    Timeliness is dependent on the surrounding circumstances, however,
    and we have rejected the notion that "the date on which the
    would-be intervenor became aware of the pendency of the action
    should be used to determine whether it acted promptly."           Sierra
    Club, 18 F.3d at 1206;     see also Corley v. Jackson Police Dep't,
    755 F.2d 1207
    , 1209 (5th Cir.1985).           The correct measure of
    promptness is the extent to which the would-be intervenor delayed
    action after it became aware that the original parties would not
    protect its interests.     Sierra Club, 18 F.3d at 1206.
           Under this standard, Morales's delay was lengthy, but not
    nearly so lengthy as it appears at first blush.         It was not until
    April 1995 that Richie's summary judgment motion alerted Morales to
    the immediate danger to his interests.            He moved to intervene
    permissively shortly thereafter, and moved to intervene as of right
    a few months later, after it became apparent that the court would
    not permit him to do so permissively.            Although his actions in
    moving to intervene as of right were not as prompt as they could
    have been, neither were they excessively tardy.         The first factor
    is neutral.
           The second factor—prejudice to the existing parties resulting
    from   delay—weighs   in   Morales's    favor.     "[P]rejudice    must   be
    measured   by   the   delay    in   seeking      intervention,    not     the
    inconvenience to the existing parties of allowing the intervenor to
    participate in the litigation."        Sierra Club, 18 F.3d at 1206.       We
    fail to see, and Richie has failed to point to, any way in which
    Morales's delayed entry into the suit will prejudice the existing
    parties.   At most, his entry will cause only inconvenience, which
    does not weigh into our decision.
           The third prong—prejudice to the would-be intervenor—also
    weighs in favor of Morales. This suit's potential for prejudice to
    the interests of the people of Texas is obvious.                  Morales's
    position is unique, for the people's interests are not represented
    by any of the existing parties. Although Morales suggests that his
    course of action in the litigation thus far would have paralleled
    that of the charitable defendants, there could quite easily be some
    point in the litigation at which his interests will diverge.      The
    fourth factor, which weighs "unusual circumstances," is neutral.
         The test for timeliness is not a mathematical formula by which
    a court simply sums its determinations on each of the four factors
    to reach an answer.     Edwards, 78 F.3d at 1004.        On balance,
    however, we think that Morales satisfies the test and that his
    application was timely, particularly in light of the potential for
    this litigation to prejudice the interests of the people of Texas.
          In order to have a sufficient interest in this case to
    support rule 24(a) intervention, Morales also must demonstrate that
    he has a "direct, substantial, legally protectable interest in the
    proceedings." New Orleans Pub. Serv., Inc. v. United Gas Pipe Line
    732 F.2d 452
    , 463 (5th Cir.) (en banc) (quoting Diaz v.
    Southern Drilling Corp., 
    427 F.2d 1118
    , 1124 (5th Cir.1970)), cert.
    469 U.S. 1019
    105 S. Ct. 434
    83 L. Ed. 2d 360
     (1984).     This
    means that the interest he is asserting must be one that the law
    recognizes as his.   Id. at 464.     Rule 24(a) also requires him to
    demonstrate that "disposition of the action may as a practical
    matter impair or impede [his] ability to protect that interest."
          Morales's status as the public protector of charities and
    charitable trusts satisfies these requirements.     See TEX. PROP.CODE
    ANN. §§ 123.001-005 (Vernon 1995).    There can be no serious debate
    that Richie's suit, if successful, would impair the ability of
    Texas charities to operate, at least until the charities persuade
    Congress or the legislature to pass additional exemptions for their
              Under this circuit's caselaw and FED. R. CIV. P. 24(a),
    Morales also bears a "minimal" burden of showing that his interest
    is inadequately represented by the existing parties.           Sierra Club,
    18 F.3d at 1207 (citing Trbovich v. United Mine Workers, 
    404 U.S. 528
    , 538 n. 10, 
    92 S. Ct. 630
    , 636 n. 10, 
    30 L. Ed. 2d 686
    He need not show that the existing representation necessarily will
    be inadequate, but only that it "may be" so.           Id. This prong of the
    rule 24(a) test sets a low standard.          That he meets it is virtually
    self-evident,     for   none   of   the    existing   defendants   can   claim
    directly to represent the interests of the citizens of Texas.
         This leads us to conclude that the district court erred in
    denying Morales's motion to intervene as of right.             The relevant
    portion of the September 30, 1996, order is therefore reversed.
              Morales's final contention is that we should reverse and
    render judgment on Richie's Texas state law claims.                  This is
    effectively an appeal from both the partial summary judgment
    against the Lutheran Foundation of Texas and the refusal to grant
    summary judgment for the other defendants.                As such, we lack
    jurisdiction to hear it, and this portion of Morales's appeal is
    accordingly dismissed.14
          See Resolution Trust Corp. v. United States Fidelity and
    Guar. Co., 
    27 F.3d 122
    , 125 (5th Cir.1994) ("The general rule in
    the federal courts, of course, is that partial summary judgments
    are not appealable."); Bodden v. Osgood, 
    879 F.2d 184
    , 186-87
    (5th Cir.1989); Way v. Reliance Ins. Co., 
    815 F.2d 1033
    , 1034
    (5th Cir.1987).
             Richie's motion to dismiss asks us to acknowledge that the
    defendants'     appeals   are   frivolous      and      to   award   sanctions
    accordingly.    Under FED. R.APP. P. 38, we may award "just damages
    and single or double costs to the appellee" if we determine that an
    appeal is frivolous.      Unlike sanctions under FED. R. CIV. P. 11,
    rule 38 sanctions are discretionary.
          The threshold consideration is frivolity.              In this circuit,
    a frivolous appeal is either one that pursues legal points not
    arguable on the merits or one in which the result is obvious.15
          We find that the defendants' and Northwestern's appeals meet
    this test.    For all their arguments about the Relief Act creating
    immunity, the defendants and Northwestern have blithely ignored
    that Richie is alleging some of them to be non-exempt, which
    creates    factual   issues,    and    that   he   is    alleging    a   hybrid
    conspiracy.    The September 30, 1996, order was unambiguous on this
    point.     Although they throw up a good smoke screen, it defies
    reality for the defendants to continue to argue that they can
    collaterally appeal the district court's ruling in the face of its
    true basis.
         As the district court correctly noted, it has never been at
    issue in this case whether a bona fide § 501(c)(3) organization is
    exempt from liability under the Relief Act. Rather, the real issue
          See Olympia Co., Inc. v. Celotex Corp., 
    771 F.2d 888
    , 893
    (5th Cir.1985), cert. denied, 
    493 U.S. 818
    110 S. Ct. 73
    107 L. Ed. 2d 39
     (1989); Coghlan v. Starkey, 
    852 F.2d 806
    , 810 (5th
    Cir.1988) (per curiam) (stating that rule 38 sanctions are
    appropriate where the outcome of the appeal "is obvious from the
    comprehensive and decisive exposition of the law by the judge
    has been, and continues to be, whether the defendants are genuine
    § 501(c)(3) organizations within the meaning of the Act, and
    whether any agreements they may have made meet the test for
    exemption.         The briefs in this case are voluminous, and the
    pleadings filed in the district court even more so.                   As the
    district court's response to the petition for mandamus put it,
    "[T]he paper keeps flowing and the meter keeps running.             There are
    765 documents filed thus far in the district court and my docket
    sheet in this case rocks on for 116 pages."              Yet nowhere do the
    defendants come to grips with the real issues.
            In light of this, we deem it appropriate to assess sanctions
    that,     though    not   fully   compensatory    of   Richie's   costs,   are
    nonetheless        substantial    enough     unequivocally   to   alert    the
    defendants to the error of their ways.           See Atwood v. Union Carbide
    850 F.2d 1093
    , 1094 (5th Cir.1988) (per curiam) (assessing
    attorney's fees "that are more than nominal but considerably less
    than fully compensatory"), cert. denied, 
    489 U.S. 1079
    109 S. Ct. 1531
    103 L. Ed. 2d 836
     (1989).              The defendants and Northwestern
    shall pay to Richie $15,000 in partial compensation of his costs
    and attorney's fees.16       Counsel for the defendants and Northwestern
    are admonished henceforth to undertake a more thorough examination
    of both the decision being appealed and the rules governing our
    appellate jurisdiction.
          We note, in the interest of clarity, that by "defendants
    and Northwestern" we do not mean to refer to Morales, who was not
    a defendant in the district court and whose appeal is not
         In summary, Richie's motion to dismiss is GRANTED, and the
    defendants' and Northwestern's appeals accordingly are DISMISSED.
    Pursuant to rule 38, the defendants and Northwestern are SANCTIONED
    $15,000 for their frivolous appeals and are hereby ORDERED to remit
    that sum to Richie.      The petition for writ of mandamus is DENIED.
    The order denying Morales's motion to intervene as of right is
    REVERSED,   and   this   case   is   REMANDED   for   further   proceedings
    consistent with this opinion.

Document Info

DocketNumber: 96-11439

Filed Date: 6/2/1997

Precedential Status: Precedential

Modified Date: 12/21/2014

Authorities (42)

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El Paso Electric Co v. Nowlin , 77 F.3d 793 ( 1996 )

Cohen v. Beneficial Industrial Loan Corp. , 337 U.S. 541 ( 1949 )

Trbovich v. Mine Workers , 404 U.S. 528 ( 1972 )

Group Life & Health Ins. Co. v. Royal Drug Co. , 440 U.S. 205 ( 1979 )

Nixon v. Fitzgerald , 457 U.S. 731 ( 1982 )

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