St. Paul Mercury Insurance v. Williamson

REVISED - September 5, 2000

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 97-31143

ST. PAUL MERCURY INSURANCE CO.,

Plaintiff-Counter Defendants-Appellee,

VERSUS

ROBERT T. WILLIAMSON; SONYA WILLIAMSON; ARLONE BELAIRE,

Defendants-Counter Claimant-Appellants,

VERSUS

RICHARD VALE; HAYNES BEST WESTERN OF ALEXANDRIA, INC.; H. L.
HAYNES; MRS. H. L. HAYNES; BEST WESTERN INTERNATIONAL, INC.;
AMERICAN GENERAL FIRE AND CASUALTY CO.; MARYLAND CASUALTY CO.,

Counter Defendants-Appellees.

--------------------------------------------------

ROBERT T. WILLIAMSON; SONYA WILLIAMSON; ARLONE BELAIRE,

Plaintiffs-Appellants,

VERSUS

RICHARD VALE; ET AL.,

Defendants,

RICHARD VALE; HAYNES BEST WESTERN OF ALEXANDRIA; BEST WESTERN
INTERNATIONAL, INC.; H. L. HAYNES; H. L. HAYNES; AMERICAN GENERAL
FIRE AND CASUALTY; MARYLAND CASUALTY CO.; ST. PAUL MERCURY
INSURANCE COMPANY; H.L. & H. HOLDING CO.;

Defendants-Appellees.

*****************************************************

No. 98-30001

ST. PAUL MERCURY INSURANCE COMPANY,

Plaintiff-Appellant,

VERSUS

ROBERT T. WILLIAMSON; ET AL.,

Defendants,

ROBERT T. WILLIAMSON; ARLONE BELAIRE; SONYA J. WILLIAMSON,

Defendants-Appellees.

--------------------------------------------------

ROBERT T. WILLIAMSON; SONYA WILLIAMSON; ARLONE BELAIRE,

Plaintiffs-Appellees,

VERSUS

RICHARD VALE; ET AL.,

Defendants,

ST. PAUL MERCURY INSURANCE COMPANY

2
 Defendant-Appellant.

*************************************************

No. 98-31243

ST. PAUL MERCURY INSURANCE CO.; HAYNES BEST WESTERN OF
ALEXANDRIA, INC.; BEST WESTERN INTERNATIONAL, INC.; H. L.
HAYNES; H. L. HAYNES, Mrs.; H & L HOLDING CO.; AMERICAN
GENERAL INSURANCE CO.; RICHARD S. VALE; MARYLAND CASUALTY CO.,

Plaintiffs-Appellees,

VERSUS

SONYA WILLIAMSON, Individually and on behalf of her minor
children, ROBERT T. WILLIAMSON, Individually and on behalf
of his minor children; LAWRENCE J. SMITH,

Defendants-Appellants.

Appeals from the United States District Court
for the Western District of Louisiana
August 17, 2000
Before JONES, DeMOSS and DENNIS, Circuit Judges.
DeMOSS, Circuit Judge:

In these three consolidated appeals, we confront a convoluted

set of facts and issues arising from the unfortunate litigiousness

of the parties involved. Despite hopes that the cycle of

litigation would end here today, we must conclude that the district

court erred in various aspects of its rulings and that resolution

3
of these cases must await another time.

I. BACKGROUND

In March of 1990, Sonya Williamson (“Sonya”) individually and

Robert Williamson (“Robert”), on behalf of their children, filed

suit in state court against various individuals and entities

including St. Paul Mercury Insurance Company (“St. Paul”)

(collectively the “insurance parties”) for injuries suffered by

Sonya at the Haynes Best Western of Alexandria. On September 26,

1994, the jury in this state case returned two findings: (1) Sonya

had sustained injuries at the motel on July 21, 1989; and (2) the

insurance parties had proved by a preponderance of the evidence

that the incident of July 21, 1989, was a result of a staged

accident or fraud. Judgment was entered in favor of the insurance

parties. On January 29, 1997, the Louisiana Fourth Circuit Court

of Appeal affirmed the jury’s verdict. See Williamson v. Haynes

Best Western, 688 So. 2d 1201 (La. Ct. App. 1997). The Louisiana

Supreme Court denied the Williamsons’ applications for writs on

June 20, 1997. See Williamson v. Haynes Best Western, 695 So. 2d

1355 (La. 1997).

On November 4, 1993, during the pendency of the state trial,

St. Paul filed suit in federal court against Robert, Arlone

Belaire,1 and Seahorse Farms (collectively with Sonya and with or

1
Arlone Belaire is Robert Williamson’s mother.

4
without Seahorse Farms as the “Williamsons”), alleging violations

of the Racketeer Influenced and Corrupt Organizations Act (“RICO”),

18 U.S.C. §§ 1961-68, and state law claims for fraud and

conspiracy. St. Paul later amended the complaint on December 12,

1994, to include Sonya as a defendant. The complaint essentially

alleged that the Williamsons have a lengthy history of making

fraudulent insurance claims and that they staged the electrocution

that supposedly injured Sonya at the motel.

On September 25, 1996, the Williamsons counterclaimed and

simultaneously initiated an action in the same federal district

court, which was ultimately consolidated with St. Paul’s suit.

They asserted various RICO and state law claims against the

insurance parties. In general, their counterclaims alleged that

the fraud defense asserted by the insurance parties in Sonya’s

state court personal injury trial, and which ultimately formed the

basis for recovery in St. Paul’s federal suit, was itself

fraudulent.

On October 22, 1997, the district court granted summary

judgment in favor of St. Paul and the other counter-defendants on

the Williamsons’ counterclaims. See St. Paul Mercury Ins. Co. v.

Williamson, 986 F. Supp. 409 (W.D. La. 1997). It further dismissed

St. Paul’s RICO claims against the Williamsons on October 30, 1997.

Subsequent to the district court’s dismissal of St. Paul’s

RICO claims, St. Paul orally dismissed Robert, Arlone, and Seahorse

5
Farms from the lawsuit at the final pretrial conference, held on

October 31, 1997. With those dismissals, the only remaining

matters were St. Paul’s state law claims for fraud and conspiracy

against Sonya. At the pretrial conference, the district court

appeared to conclude that the state court jury finding of fraud was

res judicata as to St. Paul’s state law fraud claim.2 It induced

Sonya’s counsel to admit that with the dismissal of the other

Williamson litigants, there existed the requirements for res

judicata under Louisiana law.

Sonya’s counsel, however, contended that the fraud and

conspiracy claims had prescribed. He was given the opportunity to

file a motion for summary judgment on that issue, which he did on

November 5, 1997. St. Paul responded to that motion on November 7,

1997, six days prior to trial. That response for the first time

specifically mentioned a malicious prosecution claim. Sonya filed

a reply to the response on the same day.

On November 11, 1997, the district court denied Sonya’s motion

for summary judgment based on prescription. But instead of

addressing whether the fraud and conspiracy claims had prescribed,

the district court’s order focused on whether St. Paul’s complaint

provided Sonya with notice of the operative facts underlying a

malicious prosecution claim. While acknowledging that St. Paul did

not expressly allege the legal theory of malicious prosecution, the

2
But the district court reserved the right to make a final
written ruling, which was never issued.

6
district court found that St. Paul’s complaint gave adequate notice

of that claim for purposes of Rule 8 of the Federal Rules of Civil

Procedure.

Thereafter, on November 13, 1997, the district court ruled

that the trial would proceed solely on the issue of damages. Sonya

objected and asked for a continuance, which was denied. The jury

returned a damages award against Sonya in the amount of

$411,166.56.

While the federal suit was proceeding before the district

court, Sonya and her children, through their father Robert, filed

a petition in state court in November 1995, to nullify the prior

state court judgment finding that Sonya’s injuries were the result

of a staged accident or fraud pursuant to Louisiana Code of Civil

Procedure article 2004.3 The petition alleged ill practices by the

insurance parties in concealing the defects on the motel’s premises

and in presenting false testimony from motel employees regarding

the condition and alteration of the electrical fixtures. The

nullification case sat dormant during the pendency of the federal

suit initiated by St. Paul. But in March of 1998, Sonya and the

children filed a third supplemental and amending petition in state

court, reviving the nullification suit.

3
Article 2004 states that “[a] final judgment obtained by
fraud or ill practices may be annulled.”

7
 On September 9, 1998, St. Paul and the other insurance parties

filed a complaint in federal court to enjoin the nullification

action. They argued that Sonya and the children’s nullification

petition was an attempt to relitigate the prior federal court

judgment dismissing the Williamsons’ counterclaims. Among the

counterclaims had been allegations concerning the condition of the

electrical fixtures and the insurance parties’ representations of

the motel’s premises. A hearing was held on the injunction on

October 5, 1998. On October 16, 1998, the district court

preliminarily enjoined Sonya, Robert, their children, and their

attorney Lawrence J. Smith, from pursuing the nullification action

in state court, pending the resolution of the appeal of the federal

case.

II. DISCUSSION

In these consolidated appeals, the various parties raise an

assortment of issues. In appeal No. 97-31143, the Williamson

litigants challenge the district court’s apparent directed

verdict/summary judgment order concluding that the state court jury

finding of fraud was res judicata as to the liability portion of

St. Paul’s malicious prosecution claim, its decision to strike all

of Sonya’s defenses to that malicious prosecution claim, the

sufficiency of the evidence to support the jury’s damages verdict,

certain evidentiary rulings by the district court, and its summary

8
judgment order dismissing their counterclaims. In appeal No. 98-

30001, St. Paul contests the district court’s summary judgment

order dismissing its RICO claims against the Williamsons. And in

appeal No. 98-31243, Sonya, Robert, their children, and their

attorney Smith assert that the district court erred in enjoining

the nullification suit pending in Louisiana state court. We review

each of these appeals in turn.

A. Appeal No. 97-31143

In this appeal, one of Sonya’s major contentions is that the

district court improperly determined that the state court jury’s

finding of a staged accident or fraud was res judicata as to the

liability portion of St. Paul’s malicious prosecution claim. She

offers both a procedural and a substantive reason for reversing the

district court’s ruling. Procedurally, she notes that the district

court allowed St. Paul to proceed on the malicious prosecution

theory despite that claim not having been explicitly stated in St.

Paul’s complaint. Moreover, it appeared to grant summary judgment

sua sponte on the issue of liability without affording her a chance

to respond. Substantively, Sonya maintains that the district

court’s grant of summary judgment misapplied Louisiana res judicata

law.

9
 St. Paul never specifically mentioned a malicious prosecution

claim; that is, its complaint4 did not include the magic words

“malicious prosecution.” Furthermore, St. Paul never moved to

amend its complaint to include a malicious prosecution claim.

Indeed, the first time St. Paul expressly asserted this claim was

in its response to Sonya’s motion for summary judgment.

The notice pleading requirements of Federal Rule of Civil

Procedure 8 and case law do not require an inordinate amount of

detail or precision. Rule 8 provides that “[a] pleading . . .

shall contain . . . a short and plain statement of the claim

showing that the pleader is entitled to relief . . . .” The

function of a complaint is to give the defendant fair notice of the

plaintiff’s claim and the grounds upon which the plaintiff relies.

See Doss v. South Cent. Bell Tel. Co., 834 F.2d 421, 424 (5th Cir.

1987) (citing Conley v. Gibson, 78 S. Ct. 99, 103 (1957)). The

“form of the complaint is not significant if it alleges facts upon

which relief can be granted, even if it fails to categorize

correctly the legal theory giving rise to the claim.” Dussouy v.

Gulf Coast Inv. Corp., 660 F.2d 594, 604 (5th Cir. 1981); see also

Doss, 834 F.2d at 424.

4
St. Paul actually filed more than one complaint in this case,
but none of them specifically mentioned the malicious prosecution
claim. For simplicity’s sake, we use the singular.

10
 Here, St. Paul’s complaint focused on RICO violations

purportedly committed by Sonya and the other Williamson litigants,

but in describing those violations, it generally alleged that Sonya

defrauded St. Paul by pursuing a fraudulent lawsuit in state court

for which St. Paul sought damages to compensate for the attorneys’

fees expended in that suit. Although those allegations did not

specifically include the words “malicious prosecution,” such a

claim could conceivably come within those allegations, and those

allegations state facts upon which relief can be granted.

Sonya’s second procedural issue is of greater concern. St.

Paul did not move for summary judgment based on res judicata as to

the malicious prosecution claim, let alone on the fraud and

conspiracy claims, which were the original claims that appeared to

have been barred by res judicata at the October 31 pretrial

conference. Hence, the district court must have sua sponte granted

summary judgment on the liability portion of the malicious

prosecution claim.

The district court may enter summary judgment sua sponte if

the parties are provided with reasonable notice and an opportunity

to present argument opposing the judgment. See Ross v. University

of Texas, 139 F.3d 521, 527 (5th Cir. 1998). A party must be given

at least ten days notice before a court grants summary judgment sua

sponte. See id. (quoting Miller v. Houghton, 115 F.3d 348, 350

(5th Cir. 1997)). But failure to give notice may be harmless when

11
the “‘nonmovant has no additional evidence or if all of the

nonmovant’s additional evidence is reviewed by the appellate court

and none of the evidence presents a genuine issue of material

fact.’” Id. (quoting Nowlin v. Resolution Trust Corp., 33 F.3d

498, 504 (5th Cir. 1994)).

The record is unclear as to whether the district court gave

notice to Sonya that it was considering an award of summary

judgment on the malicious prosecution claim. We can either view

the district court’s statements at the October 31 pretrial

conference as having provided notice, with the subsequent November

13 hearing reflecting the actual summary judgment ruling, or we can

view the November 13 hearing as having been the first time that

Sonya was notified about the possibility of summary judgment. In

the former case, there would have been sufficient notice, while in

the latter there would not have been. Part of the uncertainty

stems from the district court’s perception of the fraud and

malicious prosecution claims as being virtually synonymous when it

considered whether St. Paul’s complaint alleged a malicious

prosecution claim. Because the district court viewed the two

claims similarly, it naturally assumed that its oral res judicata

ruling as to the fraud claim at the October 31 pretrial conference

was controlling. But the fact that St. Paul’s complaint may have

averred a malicious prosecution claim, in addition to the fraud

claim, does not make the two claims the same. Hence, we conclude

12
that the November 13 hearing was the first notice to Sonya that the

district court was considering summary judgment as to the liability

portion of the malicious prosecution claim.

Notwithstanding this, summary judgment may still have been

proper if the district court’s procedural error was harmless. We,

however, believe that that was not the case. Under Louisiana law,

a malicious prosecution claim requires: 1) the commencement of an

original criminal or civil judicial proceeding; 2) its legal

causation by the present defendant against the present plaintiff

who was the defendant in the original proceeding; 3) its bona fide

termination in favor of the present plaintiff; 4) the absence of

probable cause for such proceeding; 5) the presence of malice

therein; and 6) damages conforming to legal standards resulting to

the plaintiff. See Hibernia Nat’l Bank v. Bolleter, 390 So. 2d

842, 843 (La. 1980). Sonya’s state court suit and the resulting

jury verdict essentially established the first three elements. To

determine if there was an absence of probable cause, we must

examine whether Sonya had an honest and reasonable belief in the

liability of St. Paul at the time that she filed her lawsuit. See

Jones v. Soileau, 448 So. 2d 1268, 1272 (La. 1984). The mere fact

that the state court jury found that the accident was staged or

fraudulent did not conclusively establish that Sonya lacked

probable cause to bring suit. Cf. id. (holding that a conviction

or its reversal is not conclusive as to whether a defendant who

13
pressed criminal charges against the plaintiff had probable cause

to bring forth the criminal complaint). Here, Sonya requested a

continuance so that she could present the testimony of the

attorneys who worked on her state court suit as to whether she had

probable cause to pursue the lawsuit. Thus, Sonya had evidence

that she wished to proffer to the court and that could have created

a genuine issue of material fact as to the probable cause element.

Therefore, we conclude that the district court should not have

granted summary judgment sua sponte, and that irrespective of

whether the district court complied with the notice requirements

for summary judgment or committed harmless error, summary judgment

based on res judicata was substantively improper.

The rules of res judicata encompass two separate but linked

preclusive doctrines: (1) true res judicata or claim preclusion and

(2) collateral estoppel or issue preclusion. See Kaspar Wire

Works, Inc. v. Leco Eng’g & Mach., Inc., 575 F.2d 530, 535 (5th

Cir. 1978). The former is typically what we call “res judicata,”

and it treats a judgment, once rendered, as the full measure of

relief to be accorded between the same parties on the same “claim”

or “cause of action.” See id. Res judicata incorporates the

doctrines of merger and bar, thereby extending the effect of a

judgment to the litigation of all issues relevant to the same claim

between the same parties, whether or not those issues were raised

at trial. Collateral estoppel precludes the relitigation of issues

14
actually adjudicated, and essential to the judgment, in a prior

suit between the parties on a different cause of action. See id.

The Supreme Court has stated that “[t]he preclusive effect of

a state court judgment in a subsequent federal lawsuit generally is

determined by the full faith and credit statute, which provides

that state judicial proceedings ‘shall have the same full faith and

credit in every court within the United State . . . as they have by

law or usage in the courts of such State . . . from which they are

taken.’” Marrese v. American Academy of Orthopaedic Surgeons, 105

S. Ct. 1327, 1331-32 (1985) (quoting 28 U.S.C. § 1738). Under this

statute, a federal court must refer to the preclusion law of the

state in which judgment was rendered. See id. at 1332.

Here, the district court had to give the same preclusive

effect to the Louisiana state court judgment as would a Louisiana

court. But, because of its civilian heritage, Louisiana’s

preclusion law is quite different from that of its common law

cousins. For example, Louisiana explicitly rejected collateral

estoppel as a preclusive device until certain statutory revisions

came into effect on January 1, 1991. See B.E. Welch v. Crown

Zellerbach Corp., 359 So. 2d 154, 156-57 (La. 1978); La. Rev. Stat.

13:4231. Consequently, the preclusive effect of judgments arising

from suits filed before that date, such as the present matter, is

determined by the law in effect prior to 1991. See La. Rev. Stat.

13:4231.

15
 While Louisiana did not have collateral estoppel until 1991,

it did codify a law of res judicata at former Louisiana Civil Code

article 2286.5 That provision provided:

The authority of the thing adjudged takes place
only with respect to what was the object of the
judgment. The thing demanded must be the same; the
demand must be founded on the same cause of action;
the demand must be between the same parties; and
formed by them against each other in the same
quality.

La. Civ. Code art. 2286. Thus, for res judicata to have applied in

the instant matter, there must have been: 1) an identity of the

parties; 2) an identity of the thing demanded; and 3) an identity

of the cause of action. See Terrebonne v. Theriot, 657 So. 2d

1358, 1361 (La. Ct. App. 1995).

When determining if res judicata applies, Louisiana courts

have narrowly construed the doctrine’s scope. See B. E. Welch, 359

So. 2d at 156. Any doubt as to compliance with the requirements of

res judicata is to be resolved in favor of maintaining the second

action. See Greer v. Louisiana, 616 So. 2d 811, 815 (La. Ct. App.

1993). And the party urging res judicata has the burden of proving

each essential element by a preponderance of the evidence. See id.

Under Louisiana law, identity of the parties does not mean

that the parties must be the same physical or material parties, but

they must appear in the suit in the same quality or capacity. See

5
Article 2286 was redesignated as La. Rev. Stat. 13:4231
without change in substance by 1984 La. Acts 331, § 7, effective
January 1, 1985.

16
id. Here, that requirement was satisfied as Sonya and St. Paul

opposed each other in both the state and federal suits in the same

quality or capacity. On the other hand, we encounter difficulties

in establishing the second and third requirements.

The thing demanded has routinely been defined as the kind of

relief sought. See Cantrelle Fence & Supply Co. v. Allstate Ins.

Co., 515 So. 2d 1074, 1078 (La. 1987). In reality, that

requirement is more complicated as it encompasses the fundamental

nature of the right claimed. “[T]he thing demanded in any action

is the recognition of the parties’ rights vis-à-vis the thing in

controversy.” David L. Hoskins, Comment, Litigation Preclusion in

Louisiana: Welch v. Crown Zellerbach Corporation and the Death of

Collateral Estoppel, 53 Tul. L. Rev. 875, 880 n.41 (1979); see also

Dennis K. Dolbear, Note, The End of Collateral Estoppel in

Louisiana: Welch v. Crown Zellerbach Corporation, 40 La. L. Rev.

246, 249 (1979) (“[I]t is the type of relief demanded, but viewed

in terms of the basis for the right of indemnification.”). In the

state court suit, St. Paul sought a defense verdict so that it

would not have to pay any damages to Sonya for her injuries. The

thing in controversy was whether Sonya had suffered any injuries

from the electrical accident and whether that accident had been

fraudulent or staged. In the federal case, what St. Paul wanted

was damages for the attorneys’ fees expended in fighting a

maliciously prosecuted state suit. Although the issue of fraud

17
played an important role in the federal suit, the relief sought in

that suit vis-à-vis the malicious prosecution claim was palpably

different from the relief requested in the state suit.

As for the third requirement of identity of cause of action,

Louisiana courts have concluded that the phrase is a mistranslation

of the French and that it really refers to the civil concept of

cause. See Greer, 616 So. 2d at 815. Cause is the juridical or

material fact which is the basis for the right claimed or the

defense pleaded. See Mitchell v. Bertolla, 340 So. 2d 287, 291

(La. 1976). It may be likened to grounds, theory of recovery, or

the principle upon which a specific demand is grounded, and it is

a narrower concept than the common law’s cause of action. See

Cantrelle Fence, 515 So. 2d at 1078; Greer, 616 So. 2d at 815.

We can distinguish between cause and cause of action by

gauging their effects under res judicata. After final judgment, a

cause of action includes all grounds in support of it, and together

they merge into the judgment so that relitigation of the cause of

action on different grounds is barred. See Cantrelle Fence, 515

So. 2d at 1078. But because cause is roughly analogous to theory

of recovery, a second suit on a different ground is not precluded.

As a result, with minor exceptions, Louisiana’s law of res judicata

does not recognize the common law “might have been pleaded” rule.

See id.; Thomas E. Loehn, Comment, Res Judicata: Cause vs. Common

Law, 22 Loy. L. Rev. 221, 230 (1976) (“The Louisiana courts have

18
judicially declared in effect that res judicata will only apply to

those matters actually litigated and concluded and not to those

that might have been urged.”).

In the state suit, St. Paul defended against Sonya, contending

that the accident was fraudulent. The cause concerned the defense,

based on fraud, of a negligence suit initiated by Sonya. That suit

ultimately resulted in a jury finding that the accident was either

staged or a fraud. In the later federal suit, St. Paul asserted a

malicious prosecution claim, a theory of recovery that is wholly

different than a fraud defense. There, the cause involved whether

Sonya maliciously prosecuted her negligence suit against St. Paul.

As previously noted, a malicious prosecution claim requires: (1)

the commencement of an original criminal or civil judicial

proceeding; (2) its legal causation by the present defendant

against the present plaintiff who was the defendant in the original

proceeding; (3) its bona fide termination in favor of the present

plaintiff; (4) the absence of probable cause for such proceeding;

(5) the presence of malice therein; and (6) damages conforming to

legal standards resulting to the plaintiff. See Hibernia Nat’l

Bank, 390 So. 2d at 843. On the other hand, “[f]raud is a

misrepresentation or a suppression of the truth made with the

intention either to obtain an unjust advantage for one party or to

cause a loss or inconvenience to the other.” Williamson, 688 So.

2d at 1239 (citing La. Civ. Code Ann. art. 1953). To prove fraud,

19
one must show: 1) an intent to defraud, and 2) actual or potential

loss or damages. See id. A comparison of those two theories of

recovery reveals that the specific elements for a malicious

prosecution claim do not coincide with those for fraud. Moreover,

a malicious prosecution claim could not have proceeded at the same

time that the state court trial on negligence and fraud was

occurring.

Despite those differences, the district court found that the

state court fraud finding established all the elements of the

malicious prosecution claim.6 The first three elements were

satisfied when the first trial terminated in favor of St. Paul.

The district court then held that the finding of fraud demonstrated

a lack of probable cause, citing to Jones v. Soileau, 448 So.2d

1268 (La. 1984). Because there was a lack of probable cause, the

district court ruled that the presence of malice was established.

See Hibernia Nat’l Bank, 390 So. 2d at 844. Lastly, the district

court said damages are presumed when all the other elements of a

malicious prosecution claim are satisfied. See id.

We believe that the ruling was in error. First, as previously

noted, a fraud claim and a malicious prosecution claim are

6
The district court noted this in its Memorandum Order of
November 11, 1997, denying Sonya’s motion for summary judgment
seeking dismissal of St. Paul’s state law claims. In concluding
that St. Paul had stated a claim for malicious prosecution in its
pleadings, that order discussed in some detail how the state court
fraud finding mirrored a malicious prosecution claim.

20
dissimilar in their elements and do not involve the same cause in

the present case. The argument that a fraud finding establishes

all the elements of a malicious prosecution claim and, therefore,

is res judicata on that claim implies that the trial on the issue

of fraud encompassed the malicious prosecution claim. This defies

logic as a malicious prosecution claim could not have been tried

until the first trial was over. Thus, there is an inherent

contradiction to the notion that a fraud finding establishes all

the elements for malicious prosecution and is res judicata on that

claim. Second, what the district court did by treating the state

court fraud finding as res judicata on the malicious prosecution

claim was to use that finding in a manner akin to offensive

collateral estoppel, incorporating the prior adjudication into the

subsequent case to shorten the litigation. Res judicata, though,

is typically a defensive doctrine, and Louisiana did not have

collateral estoppel until 1991. Finally, the district court

misread and misapplied the holding of Jones to support its

proposition that a fraud finding establishes lack of probable cause

as a matter of law. That case does not state such a holding but

actually suggests that a fraud finding in a prior case is not

conclusive as to the lack of probable cause. Hence, a fraud

finding could not have conclusively established a malicious

prosecution claim, and the former should not have been used as res

21
judicata as to the latter claim.7 Accordingly, we vacate the

summary judgment and damages verdict in favor of St. Paul on its

malicious prosecution claim.

In light of our reversal and vacatur, we decline to address

Sonya’s arguments as to the striking of her defenses or as to

whether sufficient evidence supported the jury’s damages verdict.

As for the remaining issues on appeal in No. 97-31143, after having

reviewed the briefs and the record in this case, we find them

meritless. Thus, we believe that the district court did not

improperly grant summary judgment dismissing the Williamsons’

counterclaims or err in its evidentiary rulings, and those

determinations are affirmed.

B. Appeal No. 98-30001

The second of the three appeals concerns the district court’s

summary judgment order dismissing St. Paul’s RICO claims against

the Williamsons. 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.’” Beck v. Prupis, 120 S. Ct. 1608, 1611 (2000)

(quoting 18 U.S.C. § 1964(c)). Here, St. Paul asserted violations

of § 1962(a), (c), and (d). We have reduced those subsections to

7
Furthermore, the state court jury found that the accident had
been staged or was fraudulent, not that Sonya had specifically
committed fraud. Without an examination of the state court record,
we cannot say that such a general finding of fraud could properly
be res judicata as to claims alleging individually specific charges
of fraud or malicious prosecution.

22
their simplest terms to mean that:

(a) a person who has received income from a pattern of
racketeering activity cannot invest that income in an
enterprise;
. . .
(c) a person who is employed by or associated with an
enterprise cannot conduct the affairs of the enterprise
through a pattern of racketeering activity; and
(d) a person cannot conspire to violate subsections (a),
(b), or (c).

See Crowe v. Henry, 43 F.3d 198, 203 (5th Cir. 1995). Under all

those subsections, to state a RICO claim, there must be: “(1) a

person who engages in (2) a pattern of racketeering activity (3)

connected to the acquisition, establishment, conduct, or control of

an enterprise.” Delta Truck & Tractor, Inc. v. J.I. Case Co., 855

F.2d 241, 242 (5th Cir. 1988). Assuming that the three elements of

a RICO person, a pattern of racketeering activity, and a RICO

enterprise are met, we may then continue to the substantive

requirements of each respective subsection.

Before proceeding to the three RICO elements and the

substantive requirements of the subsections, we initially address

St. Paul’s argument as to the appropriate standard of review.

Although the district court made its ruling after the Williamsons

moved for partial summary judgment, St. Paul argues that the

district court’s ruling was based solely on the pleadings and that,

therefore, the proper standard of review should be that for a

23
motion to dismiss as opposed to a motion for summary judgment.8 If

we were to review the appeal under a motion to dismiss standard,

St. Paul particularly believes that it asserted sufficient

allegations of injury caused by the Williamsons’ use of

racketeering income to maintain and operate a RICO enterprise in

violation of § 1962(a).

When a party moves for summary judgment, as the Williamsons

did in this case, “[i]t is not enough for the moving party to

merely make a conclusory statement that the other party has no

evidence to prove his case.” Ashe v. Corley, 992 F.2d 540, 543

(5th Cir. 1993). “‘[B]efore the non-moving party is required to

produce evidence in opposition to the motion, the moving party must

first satisfy its obligation of demonstrating that there are no

factual issues warranting trial.’” Id. (quoting Russ v.

International Paper Co., 943 F.2d 589, 592 (5th Cir. 1991)).

Indeed, where a motion for summary judgment is solely based on the

pleadings or only challenges the sufficiency of the plaintiff’s

pleadings, then such a motion should be evaluated in much the same

way as a Rule 12(b)(6) motion to dismiss. See id. at 544.

8
We review both a motion to dismiss and a motion for summary
judgment under a de novo standard of review. In the former, the
central issue is whether, in the light most favorable to the
plaintiff, the complaint states a valid claim for relief. See
Lowrey v. Texas A&M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997).
In the latter, we go beyond the pleadings to determine whether
there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law. See Fed. R.
Civ. P. 56(c).

24
 Contrary to St. Paul’s assertions, the Williamsons did proffer

evidence in support of their motion for summary judgment. In

addition to pointing out the lack of evidence supporting St. Paul’s

RICO claims, they offered affidavits, depositions, and other

relevant documentary evidence suggesting that their prior insurance

claims, which St. Paul alleged were some of the bases for the

income that supposedly was invested into a RICO enterprise, were

not fraudulent and could not be predicate acts for the pattern of

racketeering needed for a RICO violation.

On the other hand, St. Paul contends that the Williamsons, as

movants, failed to comply with the holding in Ashe because they did

not offer evidence to show that there was an absence of proof as to

the factual issue of whether there was investment into a RICO

enterprise. Admittedly, the thrust of the submitted evidence

related to the pattern of racketeering issue, and not the specific

issue of investment in a RICO enterprise.

But the fact that the Williamsons raised the absence of a

pattern of racketeering issue in the summary judgment motion and

provided evidence to corroborate that argument necessarily supports

the Williamsons’ other argument that there was no evidence of

investment in a RICO enterprise. Thus, the Williamsons, in their

motion for summary judgment, did not rest on conclusionary

statements but demonstrated that no factual issues warranted trial.

In light of the Williamsons’ satisfaction of their burden to

25
demonstrate that no factual issues existed and the district court’s

conscious decision to go beyond the pleadings, we review the

current appeal under the de novo standard accorded to motions for

summary judgment.

With that standard in mind, we turn to the substance of the

district court’s summary judgment order and St. Paul’s appeal. Of

the three elements required of any RICO claim, the district court

noted that the Williamsons in their summary judgment motion had not

challenged whether St. Paul had asserted and/or provided evidence

of a RICO person or a RICO enterprise. A RICO person is the

defendant, while a RICO enterprise can be either a legal entity or

an association-in-fact. See Crowe v. Henry, 43 F.3d 198, 204 (5th

Cir. 1995). If the alleged enterprise is an association-in-fact,

the plaintiff must show evidence of an ongoing organization, formal

or informal, that functions as a continuing unit over time through

a hierarchical or consensual decision-making structure. See

Elliott v. Foufas, 867 F.2d 877, 881 (5th Cir. 1989). Here, St.

Paul had identified Robert, Sonya, and Arlone as defendants and had

pleaded, and apparently established, the RICO enterprise as

Seahorse Farms, and/or an association-in-fact of Robert, Sonya, and

Arlone, and/or an association-in-fact of Robert, Sonya, Arlone, and

Seahorse Farms.

The Williamsons, however, did circuitously challenge the third

element of a pattern of racketeering activity, contending that St.

26
Paul had failed to show evidence of fraudulent insurance claims.

A pattern of racketeering activity requires two or more predicate

acts and a demonstration that the racketeering predicates are

related and amount to or pose a threat of continued criminal

activity. See Word of Faith World Outreach Ctr. Church, Inc. v.

Sawyer, 90 F.3d 118, 122 (5th Cir. 1996). By arguing that there

were no fraudulent insurance claims, the Williamsons essentially

challenged St. Paul’s allegations of mail and wire fraud, the

predicate acts asserted by St. Paul as the basis for a pattern of

racketeering activity. Among other things, both RICO mail and wire

fraud require evidence of intent to defraud, i.e., evidence of a

scheme to defraud by false or fraudulent representations. See

Crowe v. Henry, 115 F.3d 294, 297 (5th Cir. 1997). After reviewing

the pleadings and the evidence, the district court determined that

there were genuine issues of material fact as to the existence of

a scheme to defraud and, as a result, as to the existence of those

predicate offenses.

Despite finding in favor of St. Paul on the three common

elements of a RICO claim, the district court found summary judgment

proper because St. Paul had failed to meet the substantive

requirements of § 1962(a), (c), and (d). We review each of those

subsections in turn.

1. Section 1962(a)

To establish a § 1962(a) violation, a plaintiff must prove 1)

27
the existence of an enterprise, 2) the defendant’s derivation of

income from a pattern of racketeering activity, and 3) the use of

any part of that income in acquiring an interest in or operating

the enterprise. Cf. United States v. Cauble, 706 F.2d 1322, 1331

(5th Cir. 1983) (reciting elements for a § 1962(a) criminal

violation). Moreover, there must be a nexus between the claimed

violation and the plaintiff’s injury. See Crowe v. Henry, 43 F.3d

198, 205 (5th Cir. 1995). In other words, for a viable § 1962(a)

claim, any injury must flow from the use or investment of

racketeering income. See Parker & Parsley Petroleum Co. v. Dresser

Indus., 972 F.2d 580, 584 (5th Cir. 1992).

Here, the district court dismissed St. Paul’s claim because

St. Paul failed to show that income from a pattern of racketeering

activity was invested in or used to operate a RICO enterprise. The

only predicate acts to form the basis of a pattern of racketeering

activity were several counts of mail and wire fraud, which St. Paul

explicitly stated in its complaint and RICO case statement.9 From

those specific predicate acts, the district court found that the

9
St. Paul contends that other predicate acts were stated in
the complaint and the RICO case statement and that evidence was
submitted, in the form of admissions, which revealed that income
from those acts were received by the Williamsons or Seahorse Farms.
Although both the complaint and the RICO case statement do refer
generally to some comments about insurance fraud claims by the
Williamsons, the complaint and the RICO case statement clearly
state and list the predicate acts of mail and wire fraud from which
the RICO claims emanate. All of them concern acts occurring
between March 29, 1989, and October 22, 1993.

28
only evidence of income was several checks from Insurance Company

of North America (“CIGNA”). The district court ruled that the

evidence did not establish that any of those checks were invested

in or used to operate a RICO enterprise. It stated that St. Paul’s

unsubstantiated allegation that income from the predicate acts

maintained the Williamsons during the prosecution of the state tort

suit was insufficient to prove investment into a RICO enterprise.

Although some evidence existed showing investment into the alleged

RICO enterprise of Seahorse Farms, that investment was derived from

income attributed to acts that were not alleged to have been

predicate acts forming a pattern of racketeering activity.

On appeal, St. Paul primarily presses the sufficiency of its

§ 1962(a) allegations, based on the motion to dismiss argument that

we previously noted as unavailing. The initial brief devotes very

little to the district court’s conclusion that there was no genuine

issue of material fact as to the investment of racketeering income,

in the form of the CIGNA checks, into a RICO enterprise. It merely

alludes to some evidence indicating that the Williamsons’ lacked

legitimate income, and therefore, any income derived from a pattern

of racketeering activity had to have been invested into the

Williamsons’ RICO enterprise, purportedly the association-in-fact

of Sonya, Robert, and Arlone, in the form of support and

maintenance so that the enterprise could pursue the state tort suit

against St. Paul. And other than general assertions that the

29
complaint adequately alleges the existence of income from a pattern

of racketeering activity, the initial brief does not present an

argument that there is evidence substantiating the existence of

income, other than the CIGNA checks, that was derived from the

predicate acts specifically listed in the complaint. Only in its

reply brief does St. Paul directly address the district court’s

conclusion that the evidence only supports the CIGNA checks as

having been generated from a pattern of racketeering activity. In

that reply brief, St. Paul notes circumstantial evidence of several

settlement checks from a disability insurer, Motors Insurance

Corporation (“MIC”), which may have been derived from the predicate

acts that were alleged in the complaint and that formed the basis

of a pattern of racketeering activity.

By the time the CIGNA checks were sent out starting in 1991,

Seahorse Farms had terminated as an entity. The only alleged RICO

enterprise that the checks could have been invested in was the

association-in-fact of Robert, Sonya, and Arlone. The district

court, however, determined that St. Paul had failed to prove

investment into a RICO enterprise, notwithstanding evidence

suggesting that all three members of the association-in-fact had

received the CIGNA checks. It was not persuaded by St. Paul’s

unsubstantiated allegation that the use of the CIGNA checks to

maintain Robert, Sonya, and Arlone during the prosecution of the

state tort suit was investment into an enterprise. That was error.

30
Although we recognize and, in a sense, sympathize with the district

court’s apparent belief that St. Paul should have provided evidence

beyond mere allegations that the CIGNA checks helped support the

members of an enterprise to demonstrate investment into a RICO

enterprise for purposes of a § 1962(a) violation, this Circuit’s

precedent dictates that a plaintiff “need prove only that illegally

derived funds flowed into the enterprise.” Cauble, 706 F.2d at

1342; cf. United States v. Vogt, 910 F.2d 1184, 1199 & n.7 (4th

Cir. 1990) (applying a broad definition of “use” and acknowledging

as sound the government’s contention that the depositing of funds

into an enterprise constituted a use to operate in violation of

§ 1962(a)); United States v. McNary, 620 F.2d 621, 628 (7th Cir.

1980) (finding that § 1962(a) does not require direct or immediate

use of illicit income). Assuming, as we must, that Robert, Sonya,

and Arlone comprised the enterprise and that they received the

CIGNA checks, we believe a genuine issue of material fact exists as

to whether racketeering proceeds were invested in or used to

operate a RICO enterprise.

Of course, to state a claim under § 1962(a), a plaintiff must

also show that its injuries resulted from the investment or use of

racketeering proceeds. See Parker & Parsley Petroleum, 972 F.2d at

584. Although the district court did not specifically consider

that nexus requirement to rule on the Williamsons’ motion for

summary judgment, they did raise it in their motion. Because we

31
can affirm a summary judgment on grounds not relied on by the

district court so long as those grounds were proposed or asserted

in that court by the movant, see Johnson v. Sawyer, 120 F.3d 1307,

1316 (5th Cir. 1997), we address that requirement. In its

complaint, St. Paul asserted that income from a pattern of

racketeering activity, arising from mail and wire fraud predicate

acts related to certain insurance claims, was invested in or used

to operate the Williamsons’ RICO enterprise and that the income was

then used to support the enterprise as the enterprise proceeded

with a lawsuit against St. Paul, thereby resulting in St. Paul’s

injuries. Among the predicate acts alleged to form a pattern of

racketeering activity were instances of conduct directly connected

to the filing of the state tort suit, including the filing of that

suit.

This is troubling, in light of St. Paul’s other claims under

§ 1962(c) that it was essentially injured by the defendants’

pattern of racketeering activity, i.e., the predicate acts.10 In

discussing the investment injury11 requirement of § 1962(a), this

Circuit, like virtually all the other circuits who have reviewed

this issue, has intimated that such an injury cannot just flow from

10
St. Paul also alleged that those predicate acts injured it
by violating state fraud law.
11
For simplicity’s sake, we use the term “investment injury”
to refer to an injury from the use or investment of racketeering
income in a RICO enterprise.

32
the predicate acts themselves. See Parker & Parsley Petroleum, 972

F.2d at 584; see also Vemco, Inc. v. Camardella, 23 F.3d 129, 132

(6th Cir. 1994); Nuggest Hydroelec. L.P. v. Pacific Gas & Elec.

Co., 981 F.2d 429, 437-38 (9th Cir. 1992); Danielsen v. Burnside-

Ott Aviation Training Ctr., Inc., 941 F.2d 1220, 1229-30 (D.C. Cir.

1991); Ouaknine v. MacFarlane, 897 F.2d 75, 82-83 (2d Cir. 1990);

Grider v. Texas Oil & Gas Corp., 868 F.2d 1147, 1150 (10th Cir.

1989). But see Busby v. Crown Supply, Inc., 896 F.2d 833, 836-40

(4th Cir. 1990). That is, injuries due to predicate acts cannot

form the basis of an investment injury for purposes of § 1962(a).

We must ask whether the injuries were a result of the predicate

acts or a result of the investment of racketeering proceeds into a

RICO enterprise. Otherwise, “it would be difficult to understand

why Congress enacted § 1962(a).” Danielsen, 941 F.2d at 1230. If

allegations sufficient to base a § 1962(c) action meet all the

requirements of a § 1962(a) allegation, then there is no real

rationale for Congress having passed both. See id. Here, St. Paul

has come close to improperly conflating § 1962(a) and (c), by

asserting that those acts related to the filing and prosecution of

the state tort suit were mail and wire fraud predicates and that

they caused it injuries.

In its response to the Williamsons’ motion for summary

judgment and in its initial brief, however, St. Paul argues in a

roundabout way that the investment injury it suffered was not from

33
the predicate acts related to the filing of the state tort suit,

but rather from the predicate acts associated with the Williamsons’

claims with other insurance companies.12 It maintains that its

injuries are cognizable because they were the result of the

Williamsons’ investment of racketeering income from a prior pattern

of racketeering activity. See Newmeyer v. Philatelic Leasing,

Ltd., 888 F.2d 385, 396 (6th Cir. 1989).

In Newmeyer, the plaintiffs had placed some money into an

investment plan dealing with stamps, which the defendants had

marketed. See id. at 386-91. The plaintiffs’ complaints alleged

that the defendants had been acting in concert over a period of

five years, defrauding hundreds of individuals, many of them prior

to the plaintiffs’ own deception. See id. at 396. In furtherance

of their scheme, the defendants allegedly committed mail and wire

fraud, which constituted a pattern of racketeering activity. See

id. Based on those allegations, the Sixth Circuit found that the

plaintiffs had made out a § 1962(a) claim. See id. It observed

that if the allegations were true and if the defendants had used

the income derived from earlier racketeering activity against other

victims to establish and operate the alleged scam into which the

plaintiffs placed their own money, then it was not impossible for

12
We find this argument odd because, as previously noted, the
district court did not discuss or base its summary judgment order
on the investment injury requirement.

34
the plaintiffs to demonstrate a § 1962(a) injury. See id.

The present situation closely parallels the Newmeyer case

except that we encounter uncertainty as to whether St. Paul has

alleged and established more than one pattern of racketeering

activity. St. Paul’s complaint grouped all the predicate acts

together, implying that they composed one pattern of racketeering.

In addition, of the predicate acts specifically listed in the

complaint, almost all of them related to the Williamsons’ actions

to obtain monetary compensation from insurance claims arising out

of Sonya’s July 1989 electrocution. Indeed, the CIGNA checks that

purportedly constitute the investment into the RICO enterprise were

received as a result of Sonya’s electrocution, the event that also

spurred the Williamsons’ predicate acts associated with the filing

of the state court suit. The commonality in the source of those

predicate acts suggests that the predicate acts that led to the

CIGNA checks and the predicate acts connected to the filing of the

lawsuit were related and formed one pattern of racketeering

activity. If we were to discern only one pattern of racketeering

35
activity, then this case would not fit easily within the Newmeyer

holding.13

Despite the problems, we believe that St. Paul has

sufficiently distinguished and established a genuine issue of

material fact as to the existence of a prior pattern of

racketeering activity, which may have produced income that was

invested into a RICO enterprise, causing injuries to St. Paul in

the form of legal costs. Although St. Paul may have confusingly

included those predicate acts that formed the prior pattern of

racketeering activity with those predicate acts that injured St.

Paul pursuant to § 1962(c), it is apparent from the complaint and

other documents that St. Paul was asserting that it was injured by

the investment of prior racketeering proceeds into the Williamsons’

RICO enterprise. And while the CIGNA checks and the predicate acts

related to the filing of the lawsuit all arose from Sonya’s

electrocution, that commonality does not mean that no § 1962(a)

claim can be asserted. The CIGNA checks were procured as a result

of Sonya’s electrocution, but they dealt with racketeering activity

connected to the Williamsons’ actions with other insurance

companies. The predicate acts associated with the filing of the

13
Part of the problem also rests with St. Paul’s failure to
allege properly as predicate acts a host of allegations about the
Williamsons’s insurance claims from the early 1980s to 1989, which
were purportedly a part of a prior pattern of racketeering
activity. See supra note 9. If St. Paul had established those
predicate acts, then the prior pattern of racketeering activity
would have been much more evident.

36
lawsuit, which formed the basis of the pattern of racketeering

activity under § 1962(c), concerned racketeering activity primarily

related to the Williamsons’ dealings with St. Paul. Thus, while

the predicate acts connected to the CIGNA checks and to the filing

of the lawsuit all sprang from the same root, those predicate acts

were the bases of different patterns of racketeering activity.

Hence, we find that St. Paul has asserted and created a genuine

issue of material fact as to the existence of an investment injury.

Accordingly, we vacate the district court’s summary judgment in

favor of the Williamsons’ as to the § 1962(a) claim with respect to

the CIGNA checks.

As for the income from the MIC settlement checks, which were

received by the Williamsons and which St. Paul raises in its reply

brief as evidence of other racketeering income having been invested

into a RICO enterprise, we affirm the district court. Generally,

we deem abandoned those issues not presented and argued in an

appellant’s initial brief, nor do we consider matters not presented

to the trial court. See Webb v. Investacorp Inc., 89 F.3d 252, 257

n.2 (5th Cir. 1996). In its initial brief, St. Paul tangentially

referred to the Williamsons’ receipt of disability checks in

general, but any reference to those checks were in the context of

its general allegations concerning the Williamsons’ fraudulent RICO

scheme. St. Paul did not challenge the district court’s ruling

that there was no genuine issue of material fact as to the lack of

37
racketeering income other than the CIGNA checks. Likewise, St.

Paul’s response to the Williamsons’ summary judgment motion was

deficient with respect to any argument that there was evidence

supporting the receipt of income, in the form of the MIC settlement

checks, from a pattern of racketeering activity.14 Accordingly, we

believe that St. Paul has abandoned any argument regarding the

existence of evidence pertaining to income derived from a pattern

of racketeering activity.

2. Section 1962(c)

As previously noted, § 1962(c) prohibits “any person employed

by or associated with any enterprise” from participating in or

conducting the affairs of that enterprise through a pattern of

racketeering activity. See 18 U.S.C. § 1962(c). Like the

overwhelming majority of our sister circuits, we have held that

subsection (c) requires that the RICO person be distinct from the

RICO enterprise. See Bishop v. Corbitt Marine Ways, Inc., 802 F.2d

122, 122-23 (5th Cir. 1986) (collecting cases); see also Crowe, 43

F.3d at 206 (“[A] RICO person cannot employ or associate with

himself under [§ 1962(c)]”.); In re Burzynski, 989 F.2d at 743

(citing Bishop). Here, St. Paul identified Robert, Sonya, and

Arlone as defendants, and thus as RICO persons. Moreover, it

14
St. Paul submitted evidence of those checks, but it did not
connect that evidence to any argument regarding the existence of
income, in the form of those checks, derived from a pattern of
racketeering activity.

38
alleged that the enterprise was essentially the association-in-fact

of Robert, Sonya, and Arlone.

The district court viewed those allegations as failing to

establish any distinction between the RICO defendants and the RICO

enterprise, and it dismissed St. Paul’s § 1962(c) claim. The two

primary bases for the district court’s determination were the

Burzynski and Crowe decisions from this Circuit. In Burzynski, the

plaintiff, a doctor who operated a research institute, sued Aetna

Life Insurance Company (“Aetna”), a litigation consultant hired by

Aetna, the company started by that litigation consultant, and

Aetna’s outside law firm for violating, among other things,

§ 1962(c). See In re Burzynski, 989 F.2d at 742. The plaintiff

charged that the enterprise was an association-in-fact comprised of

the defendants. See id. at 743. The Burzynski panel found that

this contravened the person/enterprise distinction as required by

§ 1962(c) and by Bishop. See id. In Crowe, the plaintiff, Larry

Crowe, sued his lawyer, Sam Henry, under the RICO statutes,

including § 1962(c). See Crowe, 43 F.3d at 201. The RICO

enterprise was allegedly an association-in-fact of Crowe and Henry.

See id. at 206. Citing Burzynski, a different panel of this Court

concluded that Crowe’s claim failed to demonstrate a sufficient

distinction between the person and the enterprise. See id.

39
 St. Paul does not dispute the district court’s reading of the

Burzynski and Crowe holdings. It concedes that those decisions

seem to hold that members of an association-in-fact enterprise

cannot also be RICO persons for purposes of a § 1962(c) claim. But

St. Paul responds that recent case law casts doubt on the validity

of Burzynski’ s and Crowe’s interpretation of the person/enterprise

distinction and that those two cases actually conflict with earlier

Fifth Circuit case law. Referring to Khurana v. Innovative Health

Care Sys., Inc., 130 F.3d 143 (5th Cir. 1997), St. Paul argues that

there is a difference between the naming of a corporation as an

alleged member of an association-in-fact enterprise and the naming

of individuals as alleged members of an association-in-fact

enterprise when determining the person/enterprise distinction. In

addition, St. Paul asserts that Khurana comports with even earlier

circuit precedent, United States v. Elliott, 571 F.2d 880 (5th Cir.

1978), which perceived the person/enterprise distinction

differently than Burzynski and Crowe.

First off, we note that the Supreme Court vacated the judgment

in Khurana. See Teel v. Khurana, 119 S. Ct. 442 (1998). Second,

even if Khurana altered the landscape of the person/enterprise

distinction in our circuit, we are bound to the holdings in

Burzynski and Crowe, assuming that those are our earliest

pronouncements on this issue. See United States v. Texas Tech

Univ., 171 F.3d 279, 285 n.9 (5th Cir. 1999), cert. denied, 120 S.

40
Ct. 2194 (2000) (observing that when two prior panel decisions

conflict, the first decision controls); see also Luna v. United

States Dep’t of Health & Human Servs., 948 F.2d 169, 172 (5th Cir.

1991).

Nonetheless, reviewing Elliott and some of the other decisions

that led to the Burzynski and Crowe decisions, we believe that St.

Paul makes a meritorious argument. In Elliott, the government

prosecuted six individuals for RICO violations.15 See Elliott, 571

F.2d at 895. Those six individuals comprised the association-in-

fact enterprise. See id. at 898 n.18. Of the six, two were

charged as defendants for violating § 1962(c). See id. at 896.

Notwithstanding the fact that both individuals charged with

violating § 1962(c) were named as RICO persons and as members of

the association-in-fact, the Elliott panel affirmed their

convictions. See id. at 900.

Thus, when Bishop, the decision to which the Burzynski court

cited for support, held that to state a § 1962(c) claim, a

plaintiff had to distinguish between the RICO person and the RICO

15
Although Elliott involved a criminal prosecution as opposed
to a civil suit, the substantive requirements of § 1962(c) are the
same. Cf. Alcorn County v. U.S. Interstate Supplies, Inc., 731
F.2d 1160, 1170-71 (5th Cir. 1984), abrogated on other grounds,
United States v. Cooper, 135 F.3d 960 (5th Cir. 1998) (construing
criminal RICO cases as relevant for purposes of determining whether
a violation occurred); see also United States v. Shifman, 124 F.3d
31, 35 n.1 (1st Cir. 1997) (“[I]t is appropriate to rely on civil
RICO precedent when analyzing criminal RICO liability.”).

41
enterprise, it was not making the sweeping generalization that any

congruence between a RICO person and a member of an association-in-

fact, which constituted a RICO enterprise, violated the

person/enterprise distinction. Instead, Bishop merely concurred

with the vast majority of the circuits that held that a § 1962(c)

claim requires a distinction between the RICO person and the RICO

enterprise. Those circuits were discussing the person/enterprise

distinction where the plaintiffs were alleging a corporate entity

as both a RICO defendant and a RICO enterprise. Bishop itself

involved a plaintiff who sought a § 1962(c) claim against a single

corporate defendant, which was also named as the RICO enterprise.

See Bishop, 802 F.2d at 122.

The reason for differentiating in the § 1962(c) context

between cases where a corporation is identified as both the

enterprise and the defendant and cases where it is not was aptly

noted in the Harocco decision, to which Bishop heavily deferred.

See Harocco, Inc. v. American Nat’l Bank & Trust Co., 747 F.2d 384,

399 (7th Cir. 1984). The RICO statute distinguishes between a

corporation and an association-in-fact with respect to the “person”

element. See id. According to the Haroco court:

Where persons associate “in fact” for criminal
purposes, . . . each person may be held liable
under RICO for his, her or its participation in
conducting the affairs of the association in fact
through a pattern of racketeering activity. But
the nebulous association in fact does not itself
fall within the RICO definition of “person[]” . . .

42
 . In the association in fact situation, each
participant in the enterprise may be a “person”
liable under RICO, but the association itself
cannot be. By contrast, a corporation obviously
qualifies as a “person” under RICO and may be
subject to RICO liability.

Id. at 401. Thus, courts have routinely required a distinction

when a corporation has been alleged as both a RICO defendant and a

RICO enterprise, but a similar requirement has not been mandated

when individuals have been named as defendants and as members of an

association-in-fact RICO enterprise.16

Indeed, “‘[a] collective entity is something more than the

members of which it is comprised.’” United States v. Fairchild,

189 F.3d 769, 777 (8th Cir. 1999) (quoting Atlas Pile Driving Co.

v. DiCon Fin. Co., 886 F.2d 986, 995 (8th Cir. 1989)). “Although

a defendant may not be both a person and an enterprise, a defendant

may be both a person and a part of an enterprise. In such a case,

16
To get around having a corporation named as both a RICO
defendant and a RICO enterprise, many plaintiffs have charged the
corporation as being part of an association-in-fact enterprise and
also as a RICO defendant. Courts have roundly criticized this
formulation. See, e.g., Brittingham v. Mobil Corp., 943 F.2d 297,
300-302 (3d Cir. 1991). In some ways, that formulation parallels
the situation where individuals are named as defendants and as
being part of an association-in-fact, and accordingly, the
criticism has fed the notion that no defendant can be a part of the
association-in-fact enterprise or it would violate the
person/enterprise distinction. But the criticism pertaining to
having corporations listed as being a part of the association-in-
fact is due to the fact that a Ҥ 1962(c) enterprise must be more
than an association of individuals or entities conducting the
normal affairs of a defendant corporation.” Id.; see also Old Time
Enters. v. International Coffee Corp., 862 F.2d 1213, 1215 (5th
Cir. 1989). The criticism is generally unwarranted where
corporations are not involved.

43
the individual defendant is distinct from the organizational

entity.” Id. Otherwise, an individual member of a collective

enterprise, such as an association-in-fact, could not be prosecuted

for violating § 1962(c) because he or she would not be considered

distinct from the enterprise. See id. Accordingly, we vacate the

district court’s award of summary judgment in favor of the

Williamsons’ on St. Paul’s § 1962(c) claim.

3. Section 1962(d)

Under § 1962(d), a person cannot conspire to violate

subsections (a) or (c). See 18 U.S.C. § 1962(d). With respect to

a conspiracy to violate subsection (c), this Circuit has previously

stated that just as a RICO person cannot employ or associate with

itself, it cannot conspire to employ or associate with itself. See

Ashe, 992 F.2d at 544. As a result, the district court dismissed

the § 1962(d) claim based on an agreement to violate subsection (c)

because it concluded that St. Paul had failed to distinguish the

RICO persons from the RICO enterprise. But in light of our holding

that St. Paul has established a distinction between the RICO

persons and the RICO enterprise, we vacate the district court’s

ruling with respect to St. Paul’s § 1962(d) claim charging a

conspiracy to violate subsection (c). Moreover, we remand the case

back to the district court so that it may address St. Paul’s §

1962(d) claim based on an agreement to violate subsection (a),

44
which the district court failed to do in its order.17

C. Appeal No. 98-31243

In the third and final consolidated appeal, we must determine

whether the district court erred in enjoining Sonya, Robert, their

children, and their agents from pursuing the state court

nullification suit. Under the Anti-Injunction Act, a federal court

may not grant an injunction to stay proceedings in a state court

“except as expressly authorized by an Act of Congress, or where

necessary in aid of its jurisdiction, or to protect or effectuate

its judgments.” Next Level Communications LP v. DSC Communications

Corp., 179 F.3d 244, 249 (5th Cir. 1999). These exceptions are

narrowly construed. See id. The district court granted the

injunction based on the exception to protect or effectuate its

judgment, otherwise known as the relitigation exception. That

exception “`was designed to permit a federal court to prevent state

litigation of an issue that previously was presented to and decided

by the federal court.’” Id. (quoting Chick Kam Choo v. Exxon

Corp., 108 S. Ct. 1684 (1988)). Although generally the grant of a

preliminary injunction is reviewed for abuse of discretion, we

review the district court’s application of the relitigation

exception de novo. See Next Level, 179 F.3d at 249.

To apply the exception, the parties to the original action

17
As we previously noted, St. Paul has established a genuine
issue of material fact with respect to the § 1962(a) claim.

45
must have actually disputed the issue and the trier of fact must

have actually resolved it. See Santopadre v. Pelican Homestead &

Sav. Ass’n, 937 F.2d 268, 273 (5th Cir. 1991). In determining

which issues have been actually litigated, the federal court is

free to go beyond the judgment and may examine the pleadings and

the evidence in the prior action. See id. If a question of fact

is put in issue by the pleadings, is submitted to the jury or other

trier of facts for its determination, and is determined, then that

question of fact has been actually litigated. See id.

The state court nullification petition alleges that several

acts committed by the insurance parties during the course of the

state court negligence trial constituted ill practices within the

meaning of article 2004. Among the acts were the nondisclosure of:

(1) the identity of George Casellas, the insurance parties’ non-

testifying expert; (2) Casellas’ photograph of the wall switch; (3)

evidence indicating water migration from the second floor to Room

170; and (4) the replacement of the wall switch and lamp fixture in

Room 170. Similar allegations were included as part of the

Williamsons’ RICO counterclaims in the federal suit. Indeed,

attorney Smith conceded that the facts pertaining to the

nullification suit were essentially the same as those involved in

the RICO counterclaims. In the federal suit, the district court

granted summary judgment dismissing the RICO counterclaims,

finding: (1) that there was a lack of evidence showing an alleged

46
scheme by the insurance parties to present a fraudulent defense in

the state negligence suit; (2) that the existence of certain

photographs not revealing a cement slab between Rooms 170 and 270

did not confirm a scheme to defraud; (3) that any alleged

alterations of the wall switch or the hanging lamp were not

indicative of a scheme to defraud; (4) that the possible creation

of a drain hole above Room 170 after Sonya’s electrocution did not

confirm a scheme to defraud; (5) that none of the evidence

submitted by the Williamsons indicated that Sonya’s electrocution

could not have been staged or fraudulent; and (6) that an abundance

of evidence pointed to the possibility of fraud by the Williamsons.

Article 2004 provides for the annulment of a final judgment

obtained by fraud or ill practices. There are two criteria to

determine that a judgment has been obtained by actionable fraud or

ill practices: (1) the circumstances under which the judgment was

rendered show the deprivation of legal rights of the litigant who

seeks relief, and (2) the enforcement of the judgment would be

unconscionable and inequitable. See Kem Search, Inc. v. Sheffield,

434 So. 2d 1067, 1070 (La. 1983). In addition, article 2004 is

“not limited to cases of actual fraud or intentional wrongdoing,

but is sufficiently broad to encompass all situations wherein a

judgment is rendered through some improper practice or procedure

which operates, even innocently, to deprive the party cast in

judgment of some legal right, and where the enforcement of the

47
judgment would be unconscionable and inequitable.” Id.

The district court’s findings clearly demonstrate that the

court considered and adjudged the issue of fraud. But the

amorphous and broad definition of ill practices suggests that the

district court did not actually litigate an ultimate issue of fact

that precludes the possibility of litigating the issue of ill

practices and the corresponding nullification claim. Indeed, none

of the findings say directly that the insurance parties’ actions

were not ill practices. Accordingly, those findings do not prevent

the litigation of whether some of the alleged acts committed by the

insurance parties were improper practices that operated, even

innocently, to deprive the Williamsons some legal right.

The grant of summary judgment in favor of St. Paul on the

counterclaims asserted by the Williamsons in the federal court

proceeding for acts of RICO and fraud that allegedly occurred

during the state court trial is sufficient to support an injunction

by the federal court to prevent relitigation in the state court of

"fraud" as a grounds for nullification of the original state court

decision. But that summary judgment is insufficient to prevent

relitigation of "ill practices" under the Louisiana statute.

Consequently, we vacate the injunction issued by the district court

and remand that injunctive relief to the district court for

reissuance by the district court so as to be expressly limited to

the fraud issue.

48
 CONCLUSION

Besides the procedural irregularity associated with the sua

sponte grant of summary judgment, the jury finding that Sonya’s

injuries were the "result of a staged accident or fraud" does not,

as a matter of law, satisfy all of the elements of a malicious

prosecution claim. Therefore, the district court erred in applying

Louisiana res judicata law to hold that Sonya was liable on the

malicious prosecution theory. Accordingly, we vacate the judgment

against Sonya and remand the malicious prosecution claim of St.

Paul to the district court for trial on the merits. In addition,

we affirm the district court’s evidentiary rulings and the summary

judgment dismissing the Williamsons’ counterclaims.

As for St. Paul’s RICO claims, we vacate and remand the

following for proceedings consistent with this opinion: 1) the

judgment in favor of the Williamsons with respect to St. Paul’s §

1962(a) claim, insofar as it pertains to the CIGNA checks; 2) the

judgment in favor of the Williamsons concerning the § 1962(c)

claim; and 3) the judgment in favor of the Williamsons with respect

to the § 1962(d) claim for conspiracy to violate § 1962(c).

Furthermore, we remand to the district court for consideration St.

Paul’s § 1962(d) claim for conspiracy to violate § 1962(a).

Finally, we vacate the injunction issued by the district court

49
and remand that injunctive relief to the district court for

reissuance by the district court so as to be expressly limited to

the fraud issue.

All outstanding motions are denied.

50
51
EDITH H. JONES, dissenting:

I respectfully dissent. Despite the majority’s exacting

discussion of the issues that allegedly preclude affirming the

trial court’s judgment, I am unpersuaded on two conclusions in

particular: that the jury finding of a staged or fraudulent action

does not subsume the elements of malicious prosecution1; and that

the injunction against litigation of the Williamsons’ “ill

practices” claim must be overturned.2 The result of these twin

rulings is to nullify the original verdict -- extraordinary as it

is -- that Sonya’s electrocution claim was staged or fraudulent.

Far worse, though, is the parties’ abuse of the courts

over the last decade. To stage an accident for insurance tribute

is reprehensible. But it’s also hard to see what good, or what

collectable money judgment, may come of a RICO suit against these

pathetic perpetrators. This litigation, like this dissent, should

end!

1
How is it possible to justify the majority’s conclusion that,
even though the electrocution accident was staged or fraudulent,
there might have been probable cause to file Sonya’s suit?
2
The majority strains common sense, it seems to me, in holding
that even though the insurers committed no fraud in defending
Sonya’s electrocution lawsuit -- which was started by a staged or
fraudulent action of plaintiffs -- the insurers may have engaged in
“ill practices” of litigation.

52