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,
Plaintiff,
Boyd L. Richie, guardian of the estate of Louise T. Peter,
Plaintiff-Appellee,
v.
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.
In re AMERICAN COUNCIL ON GIFT ANNUITIES, INC., et al.,
Petitioners.
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.
I.
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
1
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
2
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
3
"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).
4
"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).
5
"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).
6
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.
II.
A.
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
Oils, 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
7
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.
denied, 474 U.S. 1037, 106 S. Ct. 605, 88 L. Ed. 2d 583 (1985).
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 (1994).
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
8
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,
2814, 86 L. Ed. 2d 411 (1985); Nixon v. Fitzgerald, 457 U.S. 731,
741-43, 102 S. Ct. 2690, 2696-97, 73 L. Ed. 2d 349 (1982).
9
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 (1989);
United States v. Barlow, 41 F.3d 935, 942 (5th Cir.1994), cert.
10
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,
231, 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 (1995);
Dillon v. Mississippi Military Dep't, 23 F.3d 915, 919 n. 8 (5th
Cir.1994).
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
appeal.11
B.
The charitable defendants protest that Richie may not
11
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.
III.
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'.
IV.
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
claims.
Most of the petition simply recycles the arguments of
12
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
Univ., 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:
13
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
Supp.1997).
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.
V.
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
Houston, 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,
1995.
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.
A.
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.
B.
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
Co., 732 F.2d 452, 463 (5th Cir.) (en banc) (quoting Diaz v.
Southern Drilling Corp., 427 F.2d 1118, 1124 (5th Cir.1970)), cert.
denied, 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
conduct.
C.
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 (1972)).
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.
D.
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
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).
VI.
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
15
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
below").
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
Corp., 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.
VII.
16
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
frivolous.
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.