Davis-Lynch v. Nancy Moreno ( 2012 )

Case: 10-20859 Document: 00511719524 Page: 1 Date Filed: 01/10/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 10, 2012
No. 10-20859 Lyle W. Cayce
Clerk
DAVIS-LYNCH, INC.,
Plaintiff-Appellee
v.
JOSE ALFREDO MORENO d/b/a HANNA-SKYE and ACCURATE and
RONALD WAYNE PUCEK,
Defendants-Appellants
Appeals from the United States District Court
for the Southern District of Texas
Before KING, JOLLY, and WIENER, Circuit Judges.
WIENER, Circuit Judge:
Plaintiff-Appellee Davis-Lynch, Inc. (“Davis-Lynch” or the “Appellee”) filed
a lawsuit against several defendants, including Defendant-Appellants Jose
Alfredo Moreno (“Moreno”) and Ronald Wayne Pucek, III (“Pucek”) (collectively
the “Appellants”), seeking injunctive relief and damages pursuant to the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968
(“RICO”), and Texas law. Both of the Appellants initially asserted their Fifth
Amendment privilege against self-incrimination in their answers to Davis-
Lynch’s complaint. After Davis-Lynch moved for summary judgment against a
number of defendants, including the Appellants, Moreno and Pucek each filed
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a response asserting that he had waived or was waiving his Fifth Amendment
privilege, and each attached an affidavit denying Davis-Lynch’s accusations.
The district court issued an order denying the Appellants’ respective
withdrawals of their Fifth Amendment privilege and striking their respective
affidavits. The district court then granted summary judgment for Davis-Lynch
against all of the defendants, including Moreno and Pucek. The Appellants now
appeal the district court’s grant of summary judgment and order denying the
Appellants’ withdrawal of their Fifth Amendment privilege against self-
incrimination and striking their affidavits. We affirm the district court’s denial
of Pucek’s withdrawal of his Fifth Amendment privilege, but reverse the district
court’s denial of Moreno’s withdrawal of his Fifth Amendment privilege. We also
reverse and remand the court’s summary judgment with respect to both of the
Appellants.
I. Facts & Proceedings
A. Facts
Davis-Lynch is a designer, manufacturer, and marketer of cementing and
floating equipment for the oil field industry. Nancy Moreno (“Nancy”), an
employee of Davis-Lynch, was in charge of accounts payable and accounts
receivable for the company. Moreno has been married to Nancy since August 16,
2008 and Pucek is married to Nancy’s daughter. Relatives of Nancy, including
her daughter, worked under her supervision at Davis-Lynch.
After discovering that one of its copy machines was located at facilities
owned or operated by Nancy’s son, Davis-Lynch undertook an investigation into
the accounts payable that Nancy managed. According to its complaint,
Davis-Lynch discovered through its investigation that Nancy and several others
had embezzled millions of dollars from Davis-Lynch. Specifically, Davis-Lynch
alleges that Nancy and other Davis-Lynch employees issued checks on Davis-
Lynch’s accounts payable to various entities and individuals that were not
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entitled to any funds, including to Pucek and to Moreno and his company,
Hanna-Skye, Inc. (“Hanna-Skye”).
B. Proceedings
Davis-Lynch filed a lawsuit against more than 20 defendants, including
Moreno and Pucek, seeking injunctive relief and damages pursuant to RICO and
Texas law.1 In their initial answers to the complaint, Moreno and Pucek each
invoked his Fifth Amendment privilege against self-incrimination. Thereafter,
during a contempt hearing held on September 13, 2010, Moreno waived his Fifth
Amendment privilege in open court and answered questions from Davis-Lynch’s
attorney. The transcript of the hearing reflects the following exchange:
Q [Attorney for Davis-Lynch]: Now, you previously pled the Fifth in this
case. You’re aware of that?
A [Moreno]: Yes, sir.
Q: And you have withdrawn, I take it, your plea
to the Fifth Amendment right?
A: Looks that way.
During this hearing, Davis-Lynch’s attorney asked Moreno substantive
questions regarding his knowledge of the sources from which Nancy obtained her
1
Specifically, Davis-Lynch argued in its motion for summary judgment that each of
the defendants violated RICO provisions 18 U.S.C. § 1962(a), (c) and (d). Davis-Lynch also
alleged that the defendants committed state law violations of (1) theft under Tex. Penal Code
§ 31.03,(2) common law fraud and misrepresentation, (3) common law breach of fiduciary
duty, (4) common law conversion, and (5) common law civil conspiracy. As further discussed
below, the district court’s order granting summary judgment is not entirely clear, but it
appears that, with respect to Moreno and Pucek, the district court granted summary judgment
to Davis-Lynch on each of its RICO claims, as well as on common law civil conspiracy.
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funds and whether he knew that funds provided to his company, Hanna-Skye,
were embezzled.
A month later, on October 13, 2010, Davis-Lynch filed a motion for
summary judgment against most of the defendants, including Moreno and
Pucek. Specifically, Davis-Lynch requested that the district court hold that each
of the defendants, including Moreno and Pucek, had committed both substantive
RICO violations2 and had participated in a RICO conspiracy3, as well as several
violations under Texas statutes and common law, including (1) statutory theft4,
(2) common law fraud and misrepresentation, (3) common law civil conspiracy,
(4) common law breach of fiduciary duty, and (5) common law conversion,
misappropriation, and imposition of constructive trust.
Davis-Lynch’s motion for summary judgment contained few specific
references to both Moreno and Pucek. Instead of discussing specific defendants,
Davis Lynch stated generally that all defendants were culpable under each
claim. Davis-Lynch further noted that each of the defendants had asserted his
Fifth Amendment privilege against self-incrimination, but did not expressly
address Moreno’s withdrawal of his Fifth Amendment privilege during the
contempt hearing.
In support of its motion for summary judgment, Davis-Lynch attached an
expert report and affidavit of Charles C. Cummings, the examiner it had hired
to investigate its account payables. In his affidavit, Cummings states that “it is
my opinion that the defendants against whom summary judgment is sought
were responsible for the loss of $15,000,000 by Davis-Lynch, Inc.” Although, as
stated by Davis-Lynch, Cummings’ expert report (the “Cummings report”) is
2
18 U.S.C. § 1962(a) and (c).
3
18 U.S.C. § 1962(d).
4
TEX. PENAL CODE § 31.03.
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“the best summary of the evidence of appellants’ involvement . . .”, it also
provides only broad generalizations and but a very few specific details regarding
Moreno and Pucek.5
The only detailed and undisputed facts in the report with respect to
Moreno are that Nancy created at least one false entry in Davis-Lynch’s records
indicating that Hanna-Skye received a Davis-Lynch machine for which it did not
pay. Specifically, the report states that, on one occasion, Nancy noted the sale
of a machine from Davis-Lynch to Hanna-Skye in the amount of $8,000. In
reviewing the entries and checks deposited, however, the report contends that
the only consideration received by Davis-Lynch in payment for the machine were
actually scrap and metal payments, not checks from Hanna-Skye in payment for
the machine.6
With respect to Pucek, the report states that Davis-Lynch’s records reflect
that it paid Pucek over $96,000.00 after 2006. The report further states that
Nancy instructed a Davis-Lynch employee to create some of the entries and
quotes that employee as stating that she does not know if Pucek “actually did the
work.” The report also quotes the “Plant Supervisor” at Davis-Lynch who states
that Pucek’s last job was performed sometime in 2005 or 2006. The report
5
Pucek contends that Cummings report should not be considered because it is unsworn
and contains hearsay. Without deciding this issue, we note that both Pucek and Moreno likely
waived any objection to the report because neither objected to the Cummings report in the
district court. Nonetheless, as discussed below, even if the Cummings report is considered,
Davis-Lynch has not presented evidence sufficient to show that it is entitled to judgment as
a matter of law.
6
The report also states that “[t]here is also a potential overbilling and/or false invoices
from Hanna-Skye, Inc. to Davis-Lynch for about $55,000, but that investigation is not
complete pending additional discovery from Hanna-Skye, Inc.” The report does not provide
any further detail with respect to this assertion. It should also be noted that the report
contains other references to Moreno, stating that he bought expensive boats, cars and other
property, and claims that it has traced over $2,000,000 moved from the Morenos’ joint bank
accounts to Hanna-Skye. These statements, without more, do not indicate that Moreno was
part of a scheme to obtain funds illegally from Davis-Lynch.
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contends that several of the Davis-Lynch checks are traceable to Pucek and his
wife’s bank accounts, but notes that its analysis is not yet final.
Moreno and Pucek do not deny that they received illegally obtained funds
or materials from Davis-Lynch. They simply deny that they knew that the funds
were embezzled and claim that they understood the funds came from legitimate
sources, i.e. Nancy’s life savings and inheritance or settlement money that
Nancy received after the death of her first husband. Therefore, at most, the
report’s undisputed facts are essentially that Pucek was paid by Davis-Lynch for
work that he did not perform, and that Moreno’s company, Hanna-Skye, received
a machine for which it did not pay.
Both Moreno and Pucek filed responses to Davis-Lynch’s motion for
summary judgment. Moreno stated that he had already waived his Fifth
Amendment privilege, and Pucek stated that he was waiving the privilege
currently in response to the motion. In addition, each Appellant filed an
accompanying affidavit denying Davis-Lynch’s claims. Davis-Lynch then filed
a motion to strike Moreno and Pucek’s affidavits, objecting to their withdrawal
of their Fifth Amendment privilege. The district judge granted Davis-Lynch’s
motion to strike both Moreno’s and Pucek’s affidavits, stating in regard to both
of the Appellants that their respective waivers of privilege “do[ ] not overcome
[their] earlier and consistent refusal to participate in discovery during the
designated period of pre-trial proceedings.”
The district court then granted Davis-Lynch’s motion for summary
judgment as to all defendants, stating that “Davis-Lynch has established a RICO
violation and conspiracy on the part of Nancy and the defendants to defraud
Davis-Lynch.”7 The district court also stated that all of the defendants “aided
and abetted Nancy in engaging in “theft, fraud and misrepresentation,
7
It appears that the district court held Moreno and Pucek liable for substantive
violations of RICO under 18 U.S.C. § 1962(a) and © and a RICO conspiracy under § 1962(d).
6
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conversation, misappropriation of funds and breach of a fiduciary duty owed by
Davis-Lynch.” In granting Davis-Lynch’s motion for summary judgment, the
district court noted that it had struck Moreno’s and Pucek’s responses and that
it accepted Davis-Lynch’s version of the facts as true. This appeal followed.
II. Withdrawal of Fifth Amendment Privilege
A. Standard of Review
A district court’s order denying a party’s withdrawal of a previously
asserted Fifth Amendment privilege in a civil case is reviewed for abuse of
discretion.8 “A trial court abuses its discretion when its ruling is based on an
erroneous view of the law or a clearly erroneous assessment of the evidence.”9
B. Withdrawal
This court has not ruled on whether and under what circumstances a party
may withdraw its invocation of the Fifth Amendment privilege against self
incrimination in a civil case. Multiple Circuits, however, have addressed this
issue, noting that it is dependent on the particular facts and circumstances of
each case.10
8
See United States v. Certain Real Prop. and Premises Known as 4003-4005 5th Ave.,
Brooklyn, N.Y., 55 F.3d 78, 85 (2d Cir. 1995) (holding that district court did not abuse its
discretion in denying a withdrawal of Fifth Amendment privilege.); Gutierrez-Rodriguez v.
Cartegena, 882 F.2d 553, 577 (1st Cir. 1989) (district court acted within its discretion in not
permitting defendant to withdraw invocation of Fifth Amendment privilege and testify at
trial.).
9
United States v. Yanez Sosa, 513 F.3d 194, 200 (5th Cir. 2008) (citations omitted).
10
See Evans v. City of Chicago, 513 F.3d 735, 743 (7th Cir. 2008); United States v.
Certain Real Prop. and Premises Known as: 4003-4005 5th Ave.,Brooklyn, N.Y., 55 F.3d 78, 85
(2d Cir. 1995); Edmond v. Consumer Prot. Div., 934 F.2d 1304, 1309-10 (4th Cir. 1991); United
States v. Parcels of Land, 903 F.2d 36 (1st Cir. 1990); SEC v. Graystone Nash, Inc., 25 F.3d
187, 191 (1st Cir. 1989).
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As a preliminary matter, it should be noted that a party may invoke the
privilege against self-incrimination in a civil proceeding.11 Accordingly, a party
may invoke the Fifth Amendment privilege during the discovery process to avoid
answering questions at a deposition, responding to interrogatories or requests
for admissions, or to produce documents.12 The Supreme Court has cautioned
that the Constitution limits “the imposition of any sanction which makes
assertion of the Fifth Amendment privilege ‘costly.’”13 Given this consideration
—— and because all parties should have a reasonable opportunity to litigate a
civil case fully —— courts should seek out ways to permit “as much testimony
as possible to be presented in the civil litigation, despite the assertion of the
privilege.”14
In addition, this court has held that, when there are competing interests
posed by an invocation of the Fifth Amendment, a court should measure “the
relative weights of the parties’ competing interests with a view toward
accommodating those interests, if possible”.15 Accordingly, Circuit Courts have
weighed the specific facts of each case in which a civil litigant has attempted to
withdraw his invocation of the Fifth Amendment privilege.
11
See Lefkowitz v. Turley, 414 U.S. 70, 77 (1973) (noting that the Fifth Amendment
allows an individual “not to answer official questions put to him in any . . . proceeding, civil
or criminal, formal or informal, where the answer might incriminate him in future criminal
proceedings.”)
12
See 8 CHARLES A. WRIGHT, ARTHUR R. MILLER AND RICHARD L. MARCUS, FEDERAL
PRACTICE AND PROCEDURE § 2018, 273 (3d ed. 2005).
13
Spevack v. Klein, 385 U.S. 511, 515 (1967) (citation omitted).
14
Certain Real Prop., 55 F.3d at 84.
15
Wehling v. Columbia Broad. Sys., 608 F.2d 1084, 1088 (5th Cir. 1979). (noting that
the plaintiff’s assertion of Fifth Amendment privilege during discovery did not automatically
require dismissal of his libel action where other, less burdensome remedy could prevent
unfairness to the defendant).
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Generally, “[t]he court should be especially inclined to permit withdrawal
of the privilege if there are no grounds for believing that opposing parties
suffered undue prejudice from the litigant’s later-regretted decision to invoke the
Fifth Amendment.”16 Conversely, withdrawal is not permitted if the litigant is
trying to “abuse, manipulate or gain an unfair strategic advantage over opposing
parties.”17 The timing and circumstances under which a litigant withdraws the
privilege are relevant factors in considering whether a litigant is attempting to
abuse or gain some unfair advantage.
For example, some Circuits have not allowed a litigant to withdraw the
privilege when he invoked the privilege throughout discovery and then sought
to withdraw the privilege either to support or defend against a motion for
summary judgment.18 In denying a litigant’s attempt to withdraw the privilege
under these circumstances, the Circuit Courts indicated concern that the litigant
appeared to be using the privilege to gain an unfair advantage. Generally,
withdrawing the Fifth Amendment privilege at a late stage places the opposing
party at a significant disadvantage because of increased costs, delays, and the
need for a new investigation.19 Furthermore, a litigant who provides previously
16
Certain Real Prop., 55 F.3d at 84 (citations omitted).
17
Id.
18
United States v. Certain Real Prop. and Premises Known as: 4003-4005 5th
Ave.,Brooklyn, N.Y., 55 F.3d 78, 85 (2d Cir. 1995) (affirming district court’s holding that
defendant who invoked Fifth Amendment privilege throughout discovery could not withdraw
privilege and respond to government’s motion for summary judgement); Edmond v. Consumer
Prot. Div., 934 F.2d 1304, 1308-09 (4th Cir. 1991) (affirming district court’s striking of
summary judgment affidavit offered in support of summary judgment motion when movant
had invoked Fifth Amendment privilege during discovery deposition); United States v. Parcels
of Land, 903 F.2d 36, 44-45 (1st Cir. 1990) (affirming decision of district court to strike
affidavit offered in opposition of government’s motion for summary judgment when non-
movant invoked Fifth Amendment privilege at deposition).
19
Certain Real Prop., 55 F.3d at 86; see also SEC v. Graystone Nash, Inc., 25 F.3d 187,
191 (1st Cir. 1989) (describing disadvantages when a party withdraws previous assertion of
Fifth Amendment privilege on the eve of trial.)
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withheld information at summary judgment places the opposing party at a
significant disadvantage in responding to such information.20
On the other hand, a party may withdraw its assertion of the Fifth
Amendment privilege, even at a late stage in litigation, if circumstances indicate
that (1) the litigant was not using the privilege in a tactical, abusive manner,
and (2) the opposing party would not experience undue prejudice as a result.21
In one case, the Third Circuit reversed a district court’s order for summary
judgment when the district court had precluded defendants from defending
against the motion by withdrawing their assertion of the Fifth Amendment
privilege.22 In reaching its conclusion that the defendants had not used the
privilege in an abusive manner and that the SEC was not unduly prejudiced by
withdrawal of the privilege, the court noted that the defendants were pro se and
were unaware of the consequences of asserting the privilege. The court also
noted that the SEC had collected a great deal of evidence during discovery,
including 30,000 documents that one defendant had provided.23
Similarly, the Seventh Circuit upheld a district court’s decision to allow
defendants who had previously invoked the Fifth Amendment privilege during
discovery to withdraw the privilege and testify at trial. In reaching its decision,
the appellate court noted that it “does not appear to us that the defendants were
20
Certain Real Prop., 55 F.3d at 86 (noting that the defendant withdrew privilege to
defend against summary judgment motion); Edmond, 934 F.2d at 1308 (observing that, in
withdrawing assertion of Fifth Amendment privilege at summary judgment, the plaintiff
“attempted to insure that his unquestioned, unverified affidavit would be the only version.”);
Parcels of Land, 903 F.2d at 45 (stating that the defendant’s “sudden change of mind” seemed
to be instigated by his “realization that the court was not going to consider his affidavit in light
of his refusal to answer deposition questions”).
21
Graystone Nash, 25 F.3d at 193.
22
Id. at 191.
23
Id. at 193-94.
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gaming the system” because they sought to withdraw their invocation of the
privilege around the time that the prosecutor “was wrapping up his probe” in the
criminal case.24 Therefore, a party may withdraw its invocation of the Fifth
Amendment privilege, even at a late stage in the process, when circumstances
indicate that there is no intent to abuse the process or gain an unfair advantage,
and there is no unnecessary prejudice to the other side.
C. Moreno
Moreno waived his privilege more than a month before the discovery
deadline, providing Davis-Lynch with several weeks during which to attempt to
re-take his deposition.25 Although his withdrawal of the privilege meant that
Davis-Lynch would incur some additional costs by taking Moreno’s deposition,
this prejudice is likely outweighed by the fact that (1) Davis-Lynch had several
weeks to depose Moreno before the discovery deadline and (2) doing so would
allow as much testimony as possible to be presented in the instant litigation.
The Supreme Court has cautioned against making invocations of the Fifth
Amendment privilege against self-incrimination unnecessarily burdensome to
the defendant, and the district court accordingly erred in denying Moreno’s
attempt to withdraw his assertion of the privilege more than a month before the
discovery deadline.
D. Pucek
Pucek contends that the district court erred in striking his affidavit
because he withdrew his assertion of the Fifth Amendment privilege within the
time allowed to respond to Davis-Lynch’s motion for summary judgment. Pucek
also insists that little prejudice would result to Davis-Lynch because there were
five days left in the discovery period at the time that Pucek withdrew his
24
Evans,513 F.3d at 746.
25
Moreno waived the privilege during a hearing on September 13, 2010, and the
discovery deadline was October 31, 2011.
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privilege, and that, at most, Davis-Lynch would have had “to take two
depositions in one week.”
Unlike Moreno’s withdrawal, however, Pucek’s withdrawal of his Fifth
Amendment privilege in response to Davis-Lynch’s motion for summary
judgement appears more likely to be an attempt to abuse the system or gain an
unfair advantage. Like the parties that attempted to withdraw their assertion
of the privilege in United States v. Certain Real Prop. and Premises Known as:
4003-4005 5th Ave.,Brooklyn, N.Y., 55 F.3d 78 (2d Cir. 1995), Edmond v.
Consumer Prot. Div., 934 F.2d 1304 (4th Cir. 1991), and United States v. Parcels
of Land, 903 F.2d 36 (1st Cir. 1990), Pucek invoked his Fifth Amendment
privilege throughout the discovery process, only to withdraw his assertion in the
face of a motion for summary judgment. In withdrawing the privilege at such
a late stage, Pucek withheld information that Davis-Lynch could have used in
its investigation, only to provide information at the last moment, leaving Davis-
Lynch at a disadvantage. Unlike the situation as to Moreno, Davis-Lynch had
less than a week to depose Pucek before the close of the discovery period. Given
Pucek’s eleventh-hour withdrawal of his Fifth Amendment privilege and the cost
and delay that Davis-Lynch would incur as a result, we are satisfied that the
district court did not abuse its discretion in denying Pucek’s withdrawal, and we
affirm that denial.
III. Motion Summary Judgment
A. Standard of Review
We review a district court’s grant of summary judgment de novo, applying
the same legal standards as the district court.26 Summary judgment should be
granted if “there is no genuine dispute as to any material fact and the movant
26
United States v. Caremark, Inc., 634 F.3d 808, 814 (5th Cir. 2011).
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is entitled to judgment as a matter of law.”27 A genuine issue of material fact
exists when the evidence is such that a reasonable jury could return a verdict for
the non-movant.28 “[A]ll facts and evidence must be taken in the light most
favorable to the non-movant.”29 To avoid summary judgment, however, the
non-movant must go beyond the pleadings and come forward with specific facts
indicating a genuine issue for trial.30 We are “not limited to the district court’s
reasons for its grant of summary judgment” and “may affirm the district court’s
summary judgment on any ground raised below and supported by the record.”31
The moving party has the burden of establishing that there is no genuine
dispute of material fact; and, unless that party does so, a court may not grant
the motion, regardless whether any response is filed.32
B. RICO Substantive Holding: § 1962(a)
RICO creates a civil cause of action for “[a]ny person injured in his
business or property by reason of a violation of section 1962 . . .”33 18 U.S.C. §
1962(a) states:
It shall be unlawful for any person who has received any income
derived, directly or indirectly, from a pattern of racketeering
activity or through collection of an unlawful debt in which such
person has participated as a principal within the meaning of
section 2, title 18, United States Code, to use or invest, directly or
indirectly, any part of such income, or the proceeds of such income,
27
FED. R. CIV. P. 56(c).
28
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248(1986).
29
LeMaire v. La. Dep’t of Transp. & Dev., 480 F.3d 383, 387 (5th Cir. 2007).
30
Piazza's Seafood World, LLC v. Odom, 448 F.3d 744, 752 (5th Cir.2006).
31
Aryain v. Wal-Mart Stores Tex. LP, 534 F.3d 473, 478 (5th Cir. 2008).
32
Hibernia Nat’l Bank v. Admin Cent. Sociedad Anonima, 776 F.2d 1277, 1279 (5th
Cir. 1985).
33
18 U.S.C. § 1964(c).
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in acquisition of any interest in, or the establishment or operation
of, any enterprise which is engaged in, or the activities of which
affect, interstate or foreign commerce.
To establish a claim under § 1962(a), a plaintiff must show that its injuries
resulted from the investment or use of racketeering proceeds.34 In other words,
injuries resulting from predicate acts of “racketeering activity”35 themselves
cannot form the basis of an investment injury for purposes of § 1962(a). Instead,
the court must determine whether the injuries asserted were the result of the
predicate acts or of the investment of racketeering proceeds into a RICO
enterprise.36
In this case, Davis-Lynch has not shown that it was injured from the
investment of the alleged racketeering proceeds. As previously stated, the only
undisputed facts presented by Davis-Lynch appear to be that (1) Pucek received
and deposited checks from Davis-Lynch for work he did not perform, and (2)
Moreno, through Hanna-Skye, received a machine for which neither he nor his
company paid. Davis-Lynch does not discuss or a present facts regarding how
these alleged racketeering proceeds (i.e., the money received by Pucek and the
machine received by Hanna-Skye) were then invested in any enterprise.
Furthermore, even if Davis-Lynch were able to show that these alleged proceeds
were then invested in an enterprise, it still has not asserted or presented facts
showing the necessary next step, viz., how it was injured by the investment of the
proceeds. Specifically, Davis-Lynch has not shown how Pucek’s alleged deposit
34
See Parker & Parsley Petroleum v. Dresser Indus., 972 F.2d 580, 584 (5th Cir. 1992).
35
Section 1961(1) defines “racketeering activity” as constituting a number of
enumerated offenses. To establish that a person engages in “a pattern of racketeering
activity”, the individual must have committed at least two crimes listed under 18 U.S.C. §
1961(1). 18 U.S.C. § 1961(5).
36
St. Paul Mercury Inc. Co. v. Williamson, 224 F.3d 425, 443 (5th Cir. 2000).
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of the funds paid to him after 2006 and Hanna-Skye’s acquisition or use of the
machine noted in Davis-Lynch’s records actually injured Davis-Lynch. At most,
Davis-Lynch has shown only that the payment of money to Pucek for work that
he did not perform and the removal of one of its machines without payment
harmed Davis-Lynch, stating only that “stolen funds” were in the amount of
$15,072,474.92. Accordingly, the district court erred by holding that Pucek and
Moreno were liable for substantive civil RICO violations under this provision.
C. RICO Substantive Holding: § 1962©
18 U.S.C. § 1962© states:
“It shall be unlawful for any person employed by or associated with
any enterprise engaged in, or the activities of which affect, interstate
or foreign commerce, to conduct or participate, directly or indirectly,
in the conduct of such enterprise’s affairs through a pattern of
racketeering activity or collection of unlawful debt.”
To “participate, directly or indirectly, in the conduct of such enterprise’s affairs”,
an individual must have some part in the operation or management of the
enterprise itself.37 An enterprise may be “operated” or “managed” by those not
employed by the enterprise if they exert control over it as, for example, by
bribery.38
Davis-Lynch has failed to show that it was entitled to summary judgment
with respect to this provision because it has not presented facts to demonstrate
that either Moreno or Pucek “operated” or “managed” the enterprise under the
instant case. Receiving funds or materials on its own, without more, does not
show that Moreno or Pucek actually operated the scheme to obtain those funds
or materials. As there is nothing in the Cummings report showing that Pucek
or Moreno had any control over the enterprise to embezzle funds from Davis-
37
Reves v. Ernst & Young, 507 U.S. 170, 179 (1993).
38
Id. at 184.
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Lynch, the district court erred in granting summary judgment to Davis-Lynch
against Pucek and Moreno or his company for substantive violations of RICO
with respect to this provision.
D. RICO Conspiracy Holding: § 1962(d)
Subsection (d) of § 1962 provides for a RICO conspiracy, stating that “[i]t
shall be unlawful for any person to conspire to violate any of the provisions of
subsection (a), (b), or © of [§ 1962].” To demonstrate a civil RICO conspiracy, a
claimant must show that : (1) two or more persons agreed to commit a
substantive RICO offense, and (2) the defendant knew of and agreed to the
overall objective of the RICO offense.39
A person need not commit or agree to commit the requisite two or more
predicate acts of “racketeering activity” to be held criminally liable as a
conspirator under RICO.40 To have standing to establish a civil RICO
conspiracy, however, a claimant must allege injury from an act that is
independently wrongful under RICO.41 Injury caused by acts that are not
racketeering activities or otherwise wrongful under RICO will not establish a
viable civil RICO claim.42
Here, the district court specifically relied on the Supreme Court’s holding
in Salinas v. United States, 522 U.S. 52, 65 (1997) to support holding Moreno
and Pucek liable for a civil RICO conspiracy.43 Although Salinas held that a
39
Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 239 (5th Cir. 2010) (citation omitted).
40
Salinas v. United States, 522 U.S. 52, 65 (1997).
41
Beck v. Prupis, 529 U.S. 494, 505 (2000).
42
Id.
43
Specifically, the district court cited Salinas, stating that “a person can be liable for
the acts of others engaged in a conspiracy where he/she engages in the conspiracy even by a
single act where there is knowledge that a crime has occurred and their conduct furthers the
criminal act.”
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defendant need only know of and agree to the overall objective of the RICO
offense to be held criminally liable for a RICO conspiracy, the Supreme Court’s
subsequent holding in Beck v. Prupis, 529 U.S. 494 (2000) made clear that, “to
establish a civil RICO conspiracy, a RICO conspiracy plaintiff [must] allege
injury from an act that is analogous to an act of tortious character, meaning an
act that is independently wrongful under RICO.”44 (emphasis added). Therefore,
Davis-Lynch needed to allege injury from an act on the part of Pucek and
Moreno that was independently wrongful under RICO.
Furthermore, the Supreme Court observed in Beck that “[t]he specific type
of act that is analogous to an act of a tortious character may depend on the
underlying substantive violation the defendant is alleged to have committed.”45
Noting that it was not expressing a view on this issue, the Supreme Court
explained that, for example, when a plaintiff alleges a violation of § 1962(a), it
would arguably have to allege injury from the defendant’s use or investment of
income derived from racketeering activity.46
As noted, Davis-Lynch failed to meet its burden showing that it was
entitled to summary judgment on its substantive RICO claims under 18 U.S.C.
§ 1962(a) and ©. In addition, Davis-Lynch failed to present evidence or allege
in its motion for summary judgment that either Moreno or Pucek engaged in any
of the enumerated predicate acts of “racketeering activity” as listed under 18
U.S.C. § 1961(1).47 As Davis-Lynch has thus failed to establish injury from an
44
Beck, 529 U.S. at 505. (internal quotation and citation omitted).
45
Beck, 529 U.S. at 505.
46
Id. at n.9.
47
Davis-Lynch contends on appeal that its summary judgment evidence shows that
Moreno and Pucek “objectively manifested their intent to directly participate in the RICO
enterprise.” It also asserts that a pattern of racketeering activity existed in this case because
“Nancy committed numerous acts of bank fraud against Davis-Lynch.” Although it also states
in passing that all of the defendants engaged in “a pattern of racketeering activity”, Davis-
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act that is independently wrongful under RICO, the district court erred in
granting summary judgment to Davis-Lynch with respect to its RICO conspiracy
claim.
E. “Aiding and abetting”: Texas statutory and common law violations
The district court’s holding with respect to Davis-Lynch’s state law
claims48 is not altogether clear. After stating that Nancy is liable for the state
claims of “theft, fraud and misrepresentation, conversion, misappropriation of
funds, and breach of fiduciary duty,” the district court went on to hold that the
“individual defendants aided and abetted Nancy’s conduct” and were liable as
“aiders and abettors” under 18 U.S.C. § 2, the federal statute establishing
criminal culpability for aiding and abetting offenses against the United States.49
The district court did not refer to any Texas statutory or common law basis to
establish liability.
The district court thus erred in holding that Moreno and Pucek were liable
as aiders and abettors of state law offenses under a federal statute. We are
limited in our review of a grant of summary judgment in that we cannot consider
newly advanced theories.50 Nonetheless, because Davis-Lynch claimed in its
motion for summary judgment that the defendants were liable for a civil
Lynch does not provide any further detail. In its motion for summary judgment, Davis-Lynch
simply advanced that all the defendants engaged in “fraudulent invoice recording, check
issuance to themselves and false vendors, false entries into the books and records of Davis-
Lynch, and the establishment of companies through assumed named certificates’ filings in
various counties of Texas.”
48
Because Davis-Lynch failed to establish that either Moreno or Pucek engaged in an
“overt act”, we do not discuss each individual state law claim.
49
Both Appellants contend that the district court was actually holding that Moreno
and Pucek were liable for aiding and abetting RICO substantive violations, and, therefore, the
holding was in error as case law establishes that no such cause of action exists. This is a
misreading of the district court’s order, which simply cites to federal authority as support for
holding that the defendants were liable for aiding and abetting state law violations.
50
8 WRIGHT & MILLER, supra § 2716.
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conspiracy to violate state law, we may —— and shall —— address the district
court’s grant of summary judgment with respect to this point.
Under Texas common law, a litigant must prove the following elements to
establish a claim for civil conspiracy: (1) two or more persons, (2) an object to be
accomplished; (3) a meeting of the minds on the object or course of action; (4) one
or more unlawful, overt acts; and (5) damages as a proximate result.51 To
establish the required “overt act”, a plaintiff must show that the defendant
committed an act that, if done alone, would give rise to a cause of action.52 And,
although a civil conspiracy may be proven by circumstantial evidence,53 such
evidence must constitute more than a mere suspicion.54 Vital facts, however,
may not be established by piling inference upon inference.55 “Some suspicion
linked to other suspicion produces only more suspicion, which is not the same as
some evidence.”56 Without rotely addressing each of Davis-Lynch’s underlying
state law claims, we conclude that it failed to show that either Moreno or Pucek
committed an “overt act” to establish a state common law civil conspiracy claim
entitling it to summary judgment.
In its motion for summary judgment, Davis-Lynch does not address or
discuss the evidence that supports the specific elements required to assert a
51
Ins. Co. of N. America v. Morris, 981 S.W.2d 667, 675 (Tex. 1998) (citation omitted).
52
Markman v. Lachman, 602 S.W.2d 350, 352 (Tex. Civ. App. — Texarkana 1980, no
pet.).
53
Alford v. Thornburg, 113 S.W.3d 575, 588 (Tex. App. — Texarkana 2003).
54
Browning-Ferris, Inc. v. Reyna, 865 S.W.2d 925, 928 (Tex. 1993.)
55
Switzer v. Joseph, 442 S.W.2d 845, 850 (Tex. Civ. App. — Austin 1969, no. pet.)
(holding that proof that defendant received sums knowing they were part of funds of which the
plaintiff had been defrauded was so weak that it raised only surmise or suspicion of the fact
sought to be established).
56
Browning-Ferris, 865 S.W.2d at 927.
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claim of common law civil conspiracy against Moreno and Pucek. Instead, Davis-
Lynch claims that its supporting evidence shows that all of the defendants
agreed “to set up bogus companies, present bogus invoices, engage in forgeries,
all to Davis-Lynch’s injury.”
With respect to Moreno, again, the Cummings expert report states that
Nancy made a false entry indicating that Hanna-Skye paid for a machine, when
in fact it had not provided payment. Without more, there is no indication that
Moreno created the invoice for the entry or directed that the entry be made. It
may be possible to infer that, because his company accepted a machine for which
it did not pay, Moreno might have known about the scheme and agreed to it.
Nonetheless, such information is not sufficient to provide the basis to infer that
Moreno was the one who created the invoice or directed that it be made. The
entry itself is suspicious, but without more, this suspicion does not rise to the
level of evidence of an overt act on the part of Moreno to obtain funds or
materials illegally from Davis-Lynch.
According to the Cummings report with respect to Pucek, a Davis-Lynch
employee created entries of invoices in Davis-Lynch’s records and claimed that
it was at Nancy’s instruction. The report also states that Cummings traced
checks from Davis-Lynch to the bank accounts of Pucek and his wife (Nancy’s
daughter). It is tenuous to infer on the basis of this evidence alone that Pucek
created or somehow directed that faux invoices be entered in the books of Davis-
Lynch. One would have to infer that, because Pucek accepted checks from
Davis-Lynch for work that he did not perform, he must have created an invoice
for the work or directed employees at Davis-Lynch to create such entries. This
is even more tenuous when viewed in light of the report’s statement that a
Davis-Lynch employee created these entries at the instruction of Nancy.
Although it is suspicious that Pucek accepted funds for work that he allegedly
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did not perform, suspicion, without more, does not constitute evidence that
Pucek engaged in an overt act to illegally obtain funds from Davis-Lynch.
Because of the dubious nature of inferring that Moreno and Pucek
committed an overt act to obtain funds or materials from Davis-Lynch illegally,
summary judgment should not have been granted with respect to its civil
conspiracy claim.
An order that essentially amounts to a default judgment is not appropriate
on a motion for summary judgment.57 Here, the district court struck the
Appellants’ affidavits and then appears to have rendered summary judgment
against them on the basis that they had not responded to the Davis-Lynch’s
allegations, without further analysis or consideration. Such a default-like
judgment is not appropriate in this context. A plaintiff seeking to establish civil
RICO claims must meet its burden of establishing the particular elements of
each claim, and the district court may not grant summary judgment if the
plaintiff has not done so. Davis-Lynch did not put forth facts to establish its civil
RICO and state law claims against the Appellants, relying instead on broad,
general statements. On remand, the district court must allow full discovery so
that the factual basis of the Appellee’s claims may be established with respect
to the Appellants.
IV. CONCLUSION
The district court’s order denying Pucek’s withdrawal of the Fifth
Amendment privilege against self incrimination is AFFIRMED. The district
court’s denial of Moreno’s withdrawal of the Fifth Amendment privilege against
self incrimination is REVERSED and REMANDED. The district court’s
summary judgment for Davis-Lynch is REVERSED and REMANDED for further
proceedings consistent with this opinion.
57
Hibernia Nat’l Bank v. Admin Cent. Sociedad Anonima, 776 F.2d 1277, 1279 (5th
Cir. 1985).
21