Filed: Jun. 04, 2012
Latest Update: Mar. 26, 2017
Summary: BANCO POPULAR DE PUERTO, RICO, as Successor in Interest of Westernbank de Puerto Rico;failure to state a claim.3, Despite language in the plaintiff's appellate brief, suggesting otherwise, this appeal does not involve a challenge to, the district court's dismissal of the RICO claims against BPPR.
United States Court of Appeals
For the First Circuit
No. 11-1985
FÁBRICA DE MUEBLES J.J. ÁLVAREZ, INCORPORADO,
Plaintiff, Appellant,
v.
INVERSIONES MENDOZA, INC.; FRANK C. STIPES; MIGUEL A. VÁZQUEZ; XL
SPECIALTY INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY;
ACE INSURANCE CO.; WILLIAM M. VIDAL-CARVAJAL; XL PROFESSIONAL;
LIBERTY INTERNATIONAL UNDERWRITERS, INC.; CHARTIS INSURANCE
CORPORATION OF PUERTO RICO,
Defendants, Appellees,
FEDERAL DEPOSIT INSURANCE CORPORATION; BANCO POPULAR DE PUERTO
RICO, as Successor in Interest of Westernbank de Puerto Rico;
ROSA VICENS,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, U.S. District Judge]
Before
Lynch, Chief Judge,
Boudin and Lipez, Circuit Judges.
Rafael González Vélez, with whom González Vélez Law
Office was on brief, for appellant.
Roberto Busó-Aboy for appellee Miguel A. Vázquez.
Manuel A. Pietrantoni, Casellas Alcover & Burgos, P.S.C.,
Benjamin C. Eggert, and Wiley Rein LLP on brief for appellee XL
Specialty Insurance Company.
June 4, 2012
LYNCH, Chief Judge. Fábrica de Muebles J.J. Álvarez,
Inc. ("Álvarez") brought suit against a bank whose successor is
Banco Popular de Puerto Rico ("BPPR"), under the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C.
§§ 1961-68, as well as under several Puerto Rico law causes of
action. The suit alleged that Westernbank, BPPR's predecessor in
interest, swept funds from an escrow account held in plaintiff's
interest. Plaintiff appeals both from the dismissal of the case
following a partial settlement and from the denial of its two
motions for reconsideration. We affirm.
I.
On December 1, 2004, plaintiff Álvarez entered into a
written agreement to sell a furniture business, including the real
estate and goods, to Inversiones Mendoza, Inc. ("Mendoza").
Westernbank agreed to finance the transaction. At the time of the
closing, Westernbank provided funds for a partial payment for the
property and obtained a first mortgage to guarantee both the loan
and other monies which Mendoza owed to the bank. The unpaid
portion of the sale became a deferred payment, and Mendoza signed
a mortgage note for $750,000.
Westernbank demanded that the parties submit a written
consignment contract to the bank for its approval. In response,
plaintiff and Mendoza executed a consignment agreement establishing
that all the consigned goods in the hands of Mendoza were, and
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would remain, the exclusive property of plaintiff, as would the
product of the sale of the goods. The product of these sales,
together with all sales records and related documents, would be
delivered to plaintiff. Plaintiff would then pay Mendoza the
corresponding amounts in accordance with the consignment agreement.
Plaintiff then deposited consigned goods, with a cost of
$1,503,900, with Mendoza. These goods had an expected sales value
of more than $6,000,000.
On August 29, 2004, the parties opened what plaintiff
alleges was an escrow account at Westernbank under the name of
Francisco Mendoza, Inc. d/b/a J.J. Álvarez, Account No. 204013356,
for the purpose of depositing the funds generated from the sale of
the consigned goods. At the time the account was opened, Mendoza
was party to a separate security agreement with Westernbank that
allegedly gave Westernbank control over all accounts where Mendoza
deposited funds. Plaintiff alleges that Westernbank provided
assurances that the escrow account would not be subject to the
separate security agreement with Mendoza, and that Westernbank
agreed that it would hold and manage said account for the benefit
of plaintiff, and make, or allow, regular payments, to plaintiff
from said account.
Plaintiff alleges that Westernbank did not honor this
agreement. Instead, it alleges, Westernbank daily swept and kept
money from the escrow account in partial satisfaction of the debts
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owed to it by Mendoza. Similarly, plaintiff alleges that
approximately $4.5 million generated by the sale of the consigned
goods was transferred directly to Westernbank without ever having
been deposited into the escrow account. It claims that Westernbank
and its employees exercised absolute financial control over
Mendoza. Westernbank enjoyed an irrevocable proxy, signed by the
main stockholders of Mendoza, which gave Westernbank full power
over Mendoza's stockholder and Board of Directors meetings. In
order to make any payments, Mendoza would have to justify the
expense to Westernbank, which would then make the funds available
to Mendoza for use.
This domineering presence allegedly prevented Mendoza
from paying to plaintiff the product of the sale of the consigned
goods. Plaintiff alleges that the bank permitted Mendoza to make
partial payments to plaintiff, but that the bank required Mendoza
to make the payments from a separate rotating account rather than
use the funds in the escrow account. Mendoza made these payments,
amounting to $366,433, using money loaned to it by the bank,
further exacerbating its financial troubles. Mendoza, unable to
pay its accumulating debts, eventually defaulted on its payments to
plaintiff for the deferred portion of the property purchase.
As a result of its debts, Mendoza filed for Chapter 11
bankruptcy. The appeal in this case is not from the bankruptcy
proceedings. Plaintiff, as holder of the mortgage note
-5-
representing the deferred payment, filed its proof of claim in
Bankruptcy Court. On September 14, 2007, following Mendoza's
bankruptcy petitions, Westernbank filed an interpleader complaint
in the Bankruptcy Court, claiming that it had legitimate reasons to
fear overlapping liability with respect to the funds which had been
deposited in the escrow account. The bank claimed that it did not
know who was rightfully entitled to the funds in the escrow
account, which at the time of the filing of Mendoza's bankruptcy
petition allegedly contained only $241,571.90.
Mendoza entered into two initial settlement agreements.
On June 4, 2008, Mendoza agreed to transfer all of its real estate
holdings to Westernbank in exchange for release by the bank from
all debts owed. On December 9, 2008, plaintiff and Mendoza signed
a settlement agreement forgiving Mendoza's unpaid debts. Under the
agreement, plaintiff agreed not to collect the outstanding claims
it had against Mendoza in exchange for an agreement to lift a stay
which would allow plaintiff to collect whatever amounts it could by
foreclosing on its mortgage.
II.
On June 19, 2009, plaintiff Álvarez filed a complaint in
the U.S. District Court for the District of Puerto Rico against
Westernbank and various John Doe employees and insurance
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companies.1 The complaint identified five causes of action: (1)
"Civil Law Fraud, Breach of Fiduciary Duty, Lender's Liability";
(2) "Violation of R.I.C.O Act"; (3) "Civil Fraud Under Commonwealth
Law"; (4) "Recovery of Funds or Property"; and (5) "Foreclosure of
Mortgage." As to the RICO claims, the plaintiff pled violations
under subsections (a), (c), and (d) of 18 U.S.C. § 1962. On
September 28, 2009, Westernbank moved to dismiss the complaint for
failure to state a claim. The district court partially granted the
motion, allowing only the § 1962(c) RICO claim and the remaining
state law claims to survive. See Fábrica de Muebles J.J. Álvarez,
Inc. v. Westernbank de P.R., No. 09-1558, 2009 WL 4730776, at *5,
*9 (D.P.R. Dec. 4, 2009).
On April 30, 2010, the Commissioner of Financial
Institutions of Puerto Rico closed Westernbank's banking operations
and appointed the Federal Deposit Insurance Corporation ("FDIC") as
its receiver to liquidate Westernbank. On the same date, the FDIC
sold most of Westernbank's assets to BPPR. On May 12, 2010, BPPR
replaced Westernbank in the present case.
1
The complaint identifies "John Doe and Richard Roe" as
"fictitious names, to be later substituted for the real names, of
individuals who, as officers, directors or related persons of
Westernbank, maliciously or negligently participated or made
possible the incidents that give rise to this action."
The complaint also identifies "Insurance companies 'A', 'B'
and 'C'" as "fictitious names, to be later substituted for the real
names, of insurance companies that issued policies to cover the
damages . . . caused by the bank, its officers, directors or
related."
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Most significantly, on March 18, 2011, plaintiff agreed
at a settlement conference to voluntarily dismiss three of the five
causes of action against BPPR: (1) the civil law fraud and breach
of fiduciary duty claim, (2) the remaining RICO claim, and (3) the
claim of civil fraud under Puerto Rico law. The district court
ordered the parties to file, pursuant to the settlement agreement,
a stipulation dismissing the three causes of action against BPPR by
March 25, 2011. At that point, plaintiff had not identified or
served individuals who had been bank officers as defendants.
At the same settlement conference, plaintiff informed the
court that it had recently identified insurance companies which had
issued policies that would cover the damages in the case.
Plaintiff moved to amend the complaint by substituting those
companies for the fictitious insurers it had named in the original
complaint. In its order granting the motion to amend, the district
court explained that it was "reluctant to add new parties at this
stage in the case, [but that] plaintiff has shown cause for the
delay and the addition of these insurers at this stage may result
in the most expedient resolution of a complex matter." Fábrica de
Muebles J.J. Álvarez, Inc. v. Westernbank de P.R., No. 09-1558
(D.P.R. Mar. 18, 2011). The court allowed the plaintiff "until
March 25, 2011 to amend the complaint to name the insurers." Id.
Neither the plaintiff's motion nor the district court order made
any reference to Westernbank employees.
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On March 25, 2011, the plaintiff filed an amended
complaint naming not only the insurance companies that it had moved
to include in the complaint, but also several new Westernbank
employees. On April 4, 2011, BPPR objected to plaintiff's
inclusion of the Westernbank employees in contravention of the
express language of the district court's order.
On March 28, 2011, after the stipulation deadline had
passed, BPPR moved to dismiss the causes of action that the
plaintiff had agreed to dismiss.2 BPPR represented that the
plaintiff had failed to cooperate or comply with any of its
requests to help prepare such a stipulation. The district court
granted the motion. Fábrica de Muebles J.J. Álvarez, Inc. v.
Westernbank de P.R., No. 09-1558 (D.P.R. Apr. 4, 2011).
On June 28, 2011, the district court ordered the
plaintiff to show cause as to why the remaining claims, which it
characterized as state law claims, should not be dismissed for lack
of subject matter jurisdiction. Fábrica de Muebles J.J. Álvarez,
Inc. v. Westernbank de P.R., No. 09-1558 (D.P.R. June 28, 2011).
2
BPPR moved to dismiss four causes of action: the three
agreed upon at the settlement conference, as well as a fourth,
"recovery of funds or property." The plaintiff filed an opposition
to the motion to dismiss, stating that it had not agreed to dismiss
the "recovery of funds or property" claim at the settlement
conference. Based on this opposition, the district court declined
to dismiss the "recovery of funds or property" claim. See Fábrica
de Muebles J.J. Álvarez, Inc. v. Westernbank de P.R., No. 09-1558
(D.P.R. July 5, 2011). Plaintiff did not claim that it also had
RICO claims against employees.
-9-
It is clear the court considered that all federal claims had been
dismissed with the consent of plaintiff. The order stated:
The court is in the process of reviewing and
considering all the pending motions. It
appears from the record that on April 4, 2011
(Docket No. 124), the court dismissed the only
federal claims before this court, to wit, the
RICO claims. Given that the federal RICO
claim was dismissed without objection from the
plaintiff, the court orders the plaintiff TO
SHOW CAUSE on or before Friday, July 1, 2011,
as to why the remaining claims should not be
dismissed for lack of subject matter
jurisdiction, given that there is no federal
question or diversity among the parties.
Id.
Plaintiff did not respond to this show cause order within
the time directed by the district court. On July 5, 2011, the
district court determined that only state claims for mortgage
foreclosure and recovery of funds remained at issue in the
litigation and declined in its discretion to exercise supplemental
jurisdiction over such claims. Fábrica de Muebles J.J. Álvarez,
Inc. v. Westernbank de P.R., No. 09-1558 (D.P.R. July 5, 2011).
On July 5, 2011, plaintiff filed a motion for
reconsideration, arguing that the case involved questions of
bankruptcy law that the district court was more competent to handle
than state courts. The district court denied this motion on July
6, 2011 in a brief docket entry that states: "If the Bankruptcy
Court retained jurisdiction to entertain controversies regarding
the meaning of and compliance with the reorganization plan, any
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matter or dispute referring or relating to this plan should be
taken up with said court." Fábrica de Muebles J.J. Álvarez, Inc.
v. Westernbank de P.R., No. 09-1558 (D.P.R. July 5, 2011).
On July 21, 2011, the plaintiff filed a second motion for
reconsideration, this time arguing for the first time that the
district court should retain jurisdiction because it had RICO
claims against the Westernbank employees which had never been
dismissed. On August 3, the district court denied this motion as
well, stating in a brief docket entry: "The court, on
reconsideration, ordinarily will not consider any new grounds for
relief. However, the proffered reason for finding federal
jurisdiction -- interpretation of a bankruptcy court ordered plan
within the state law dispute at issue -- is not per se a reason to
exercise jurisdiction." Fábrica de Muebles J.J. Álvarez, Inc. v.
Westernbank de P.R., No. 09-1558 (D.P.R. July 21, 2011). On August
4, 2011, plaintiff appealed.
III.
Plaintiff Álvarez appeals both denials of its motions for
reconsideration, as well as the July 5, 2011 dismissal of the
case.3 We address each in turn.
3
Despite language in the plaintiff's appellate brief
suggesting otherwise, this appeal does not involve a challenge to
the district court's dismissal of the RICO claims against BPPR.
The § 1962(c) RICO claim against BPPR was clearly dismissed
pursuant to a settlement agreement between the plaintiff and BPPR.
Plaintiff did not object to that dismissal below, and any appeal of
that dismissal now is clearly waived. Furthermore, an appeal of
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A. Denial of Plaintiff's Motions for Reconsideration
We review a district court's dismissal of a motion for
reconsideration for abuse of discretion. Latin Am. Music Co. v.
Am. Soc'y of Composers, Authors & Publishers, 642 F.3d 87, 91 (1st
Cir. 2011). "The granting of a motion for reconsideration is 'an
extraordinary remedy which should be used sparingly.'" Palmer v.
Champion Mortg.,
465 F.3d 24, 30 (1st Cir. 2006) (quoting 11
Charles Alan Wright et al., Federal Practice and Procedure § 2810.1
(2d ed. 1995)). The moving party "must 'either clearly establish
a manifest error of law or must present newly discovered
evidence.'" Marie v. Allied Home Mortg. Corp.,
402 F.3d 1, 7 n.2
(1st Cir. 2005) (quoting Pomerleau v. W. Springfield Pub. Sch.,
362
F.3d 143, 146 n.2 (1st Cir. 2004)). A motion for reconsideration
"does not provide a vehicle for a party to undo its own procedural
failures, and it certainly does not allow a party to introduce new
evidence or advance arguments that could and should have been
presented to the district court prior to the judgment." Aybar v.
Crispin-Reyes,
118 F.3d 10, 16 (1st Cir. 1997) (quoting Moro v.
Shell Oil Co.,
91 F.3d 872, 876 (7th Cir. 1996)) (internal
quotation marks omitted).
Plaintiff's principal claim on appeal is that the
district court abused its discretion in denying the second motion
the dismissal of the § 1962(a) or § 1962(d) RICO claims against
BPPR would be untimely under Federal Rule of Appellate Procedure
4(a)(1)(A).
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for reconsideration because, while plaintiff agreed to the
dismissal of the RICO claims against BPPR, plaintiff never agreed
to the dismissal of its RICO claims against the Westernbank
employees.
The short answer is that it was reasonable for the
district court, after settlement, to have viewed the dismissal
order as encompassing all the RICO claims. And plaintiff,4 when
given the opportunity to present a different view, utterly failed
to do so.
It was reasonable for the district court to have believed
that the RICO claims against BPPR were the only RICO claims in the
case. As an initial matter, the district court did not authorize
the plaintiff to amend the complaint to add the named Westernbank
employees. The plaintiff requested leave only to add new insurance
companies to the complaint, and the district court's order limited
the scope of plaintiff's amendment to the addition of insurance
companies only. Fábrica de Muebles J.J. Álvarez, Inc. v.
Westernbank de P.R., No. 09-1558 (D.P.R. Mar. 18, 2011). This
intent is reaffirmed in the district court's July 5, 2011, motion
dismissing the remaining claims without prejudice. After BPPR
objected to the plaintiff's inclusion of new Westernbank employees
4
We do not need to decide whether plaintiff ever had any
viable RICO claims against certain Westernbank officers. By its
actions, plaintiff has waived any such claims and its eventual
protests were too little and too late.
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as parties, the district court clarified that the complaint had
been amended only "to include insurance companies, [and that] the
causes of action remained the same." Fábrica de Muebles J.J.
Álvarez, Inc. v. Westernbank de P.R., No. 09-1558 (D.P.R. July 5,
2011).
Moreover, as to the Westernbank employees, the complaint
pleads only the "control or influence" element of a RICO claim.
The remainder of the pled RICO claim discusses only the actions of
Westernbank and makes no mention of its employees. It is basic law
that RICO claims against employees must be separate and distinct
from those against the employer. See, e.g., Bessette v. Avco Fin.
Servs., Inc., 230 F.3d 439, 449 (1st Cir. 2000). Without having
pled each element of a RICO claim as to the Westernbank employees
separate and apart from Westernbank itself, it is not clear that
the complaint stated a claim under RICO against the employees or
was intended to do so.
Further, no individuals had been named or served as
defendants at the time the claims were reported settled. Although
the parties were ordered by the court to file a stipulation of
settlement, plaintiff failed to cooperate and did nothing.
Plaintiff did not assert that it had RICO claims remaining.5
5
Nor did plaintiff seek leave, after it had reported the
case against the bank settled, to amend the complaint to assert
independent RICO claims against employees.
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Nor did the plaintiff clarify post-dismissal, despite
several opportunities to do so, that it had intended to assert RICO
claims against the Westernbank employees, which were not
encompassed by the dismissal. First, the plaintiff failed to
respond to the district court's June 28, 2011 order to show cause
as to why the remaining claims should not be dismissed for lack of
jurisdiction. "Because federal courts are courts of limited
jurisdiction, federal jurisdiction is never presumed." Viqueira v.
First Bank, 140 F.3d 12, 16 (1st Cir. 1998). The party asserting
jurisdiction has the burden of demonstrating the existence of
federal jurisdiction. Id. (citing Aversa v. United States,
99 F.3d
1200, 1209 (1st Cir. 1996); Murphy v. United States,
45 F.3d 520,
522 (1st Cir. 1995)). By remaining silent on the show cause order,
plaintiff failed to meet this burden.
Moreover, plaintiff failed to mention any such RICO
claims against the Westernbank employees in its first motion to
reconsider. Instead, the plaintiff argued only that the court
should retain jurisdiction because the case involves settlement
agreements arising out of federal bankruptcy proceedings. It was
not until the district court denied this first motion that the
plaintiff filed a new motion raising, for the first time, the issue
of RICO claims against Westernbank employees.
This attempt to resuscitate any RICO claims as to
individuals came far too late. A motion for reconsideration is not
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a vehicle for the introduction of arguments that could and should
have been made to the district court earlier, nor may a party move
for reconsideration on the basis of its own procedural failures.
See Aybar, 118 F.3d at 16. Accordingly, the district court did not
abuse its discretion in denying the plaintiff's second motion for
reconsideration.
Nor did the district court abuse its discretion in
denying the plaintiff's first motion for reconsideration. There,
the plaintiff argued in essence that because Mendoza's June 4, 2008
and December 9, 2008 settlement agreements arose out of the
bankruptcy proceedings, they fall within the ambit of bankruptcy
law and a federal court is better positioned than a state court to
interpret their meaning and scope.
The district court correctly ruled that the mere fact
that the settlement agreements arose in the context of a bankruptcy
proceeding is not a stand-alone basis for federal jurisdiction. To
the contrary, interpreting these agreements and their scope is a
matter of state contract law, an area that falls squarely within
the traditional competence of state courts. See Citibank Global
Mkts., Inc. v. Rodríguez Santana, 573 F.3d 17, 26-27 (1st Cir.
2009).
B. Dismissal for Lack of Subject Matter Jurisdiction
Plaintiff argues that the court erred in dismissing the
case after the show cause order because its complaint should have
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been read as asserting federal claims beyond the RICO claims. We
review de novo a district court's dismissal for lack of subject
matter jurisdiction. Abdel-Aleem v. OPK Biotech LLC, 665 F.3d 38,
41 (1st Cir. 2012).
Plaintiff argues that the complaint on its face supported
several federal causes of action other than under RICO, including
under Sarbanes Oxley, 15 U.S.C. § 7219, the Transportation of
Stolen Property Act, 18 U.S.C. § 2314, statutes regulating the
relationship between the FDIC and the bank, including 12 U.S.C.
§ 1811,6 and various other federal securities laws.
The complaint's references to these statutes does not
come close to meeting the pleading requirements of Ashcroft v.
Iqbal, 556 U.S. 662 (2009). See United States ex rel. Duxbury v.
Ortho Biotech Prods., L.P.,
579 F.3d 13, 28 (1st Cir. 2009) (citing
Iqbal to affirm dismissal for lack of subject matter jurisdiction
where relator failed to adequately plead that he qualified as an
original source under the False Claims Act); Rodriguez v. SK & F
Co.,
833 F.2d 8, 8 (1st Cir. 1987) (per curiam) (affirming
dismissal for lack of subject matter jurisdiction where "the
plaintiff has failed to allege grounds upon which to support either
6
Plaintiff also argues that the FDIC's status as a party in
the case conferred upon the court federal question jurisdiction.
This argument is now moot; we have dismissed the appeal as to the
FDIC with prejudice pursuant to an agreement between the plaintiff
and the FDIC under Federal Rule of Appellate Procedure 42(b). See
Fábrica de Muebles J.J. Álvarez, Inc. v. Inversiones Mendoza, Inc.,
No. 11-1985 (1st Cir. Dec. 21, 2011).
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his conclusory allegation of diversity jurisdiction or federal
question jurisdiction"). At most, some of these statutes are
briefly mentioned in the complaint; they are simply listed on the
second page of the complaint rather than pled as causes of action,
and that is insufficient. See Marrero-Rodríguez v. Municipality of
San Juan, No. 11-1195, 2012 WL 1571234, at *3 (1st Cir. May 7,
2012) ("Plaintiff's purported Fourth Amendment claim fails to meet
the pleading standards of Iqbal [because it] was not even pled as
a claim, but only mentioned on the first page of the complaint.")
(to be published in F.3d).
IV.
We affirm the district court's dismissal of the case
without prejudice, as well as the district court's denial of
plaintiff's two motions for reconsideration.
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