United States Court of Appeals,
Eleventh Circuit.
No. 94-4985.
BANCO INDUSTRIAL DE VENEZUELA, C.A., a Venezuelan Banking
Institution, Plaintiff-Appellant,
v.
CREDIT SUISSE, a Swiss Banking Institution, Maria Isabel Doyle,
an Individual, Defendants-Appellees.
Nov. 20, 1996.
Appeal from the United States District Court for the Southern
District of Florida. (No. 90-1470-CIV-KMM), K. Michael Moore,
Judge.
Before HATCHETT, Chief Judge, ANDERSON, Circuit Judge, and WOOD*,
Senior Circuit Judge.
WOOD, Senior Circuit Judge:
This civil case based on diversity and federal question
jurisdiction involves extensive fraud in international banking.
A brief factual summary is necessary. Plaintiff-appellant,
Banco Industrial de Venezuela C.A. (BIV), referred to as a
development bank, was established and is owned by the government of
Venezuela. In 1983, during difficult economic times, Venezuela
instituted a program designed to encourage the import of certain
categories of essential goods not produced in Venezuela, such as
farm machinery and medicines. This was done by instituting a
preferential currency exchange rate for U.S. Dollars administered
1
by the government. The program was called RECADI. Under the
*
Honorable Harlington Wood, Jr., Senior U.S. Circuit Judge
for the Seventh Circuit, sitting by designation.
1
Venezuela also developed another currency program which was
intended to discourage nonessential imports and encourage
exports. This program was seen as increasing Venezuela's foreign
program, letters of credit were issued by BIV to facilitate the
RECADI imports.
Before long, those with sophisticated criminal intentions saw
substantial personal possibilities in the government's RECADI
program. Instrumental in the abuse of this program was a man named
Felix Miralles. Miralles was executive vice president of BIV, and
the person solely in control of the bank's letter of credit
department involved in the RECADI program. Miralles reported to no
higher authority about letters of credit, and on other matters he
reported only to the bank's president. The dubious distinction,
however, for devising this particular financial conspiracy goes to
a person named Jose Mederos, aided by a man named Machado, both
non-bank employees. They quickly got the helpful attention of
Miralles by paying him bribes exceeding $400,000. The conspiracy
was simple in concept. Miralles would approve the payment of BIV
letters of credit for nonexistent RECADI imports that were shown to
exist by false documents. BIV would then be reimbursed by the
government. The letters of credit and the documents were patently
false and inadequate. During the trial they were at times
described in nonlegal terms as "chimbo" (phonetic), translated to
mean "Mickey Mouse." In time, the Venezuelan government recognized
the inadequacy and refused to reimburse BIV. Nevertheless, the
fraud worked for a while and finally collapsed in a national
scandal in 1987. BIV lost in excess of $1,618,000. However, for
several years during the operation of the fraud it was not a losing
currency reserves and strengthening the Venezuelan economy. That
program is not involved in this case.
proposition for BIV, as the bank collected its usual transaction
fees for issuing the fraudulent letters of credit.
The situation gets more complicated with the entrance of
defendant Maria Doyle. She formerly had been a Panamanian lawyer,
but at this time was employed as an assistant treasurer in the
Miami branch of defendant Credit Suisse (CS), a Swiss banking
institution. Venezuela was part of her area of banking
responsibilities. Doyle met Mederos in 1985 when Mederos opened a
personal banking account with CS/Miami, in addition to several
separate corporate accounts, using BIV as a reference. Mederos
deposited substantial sums in his accounts at CS/Miami. The
corporate accounts apparently were useful to Mederos in his bogus
shipping transactions. When Mederos desired to form some
Panamanian corporations, Doyle referred him to her former law firm
in Panama. Later in 1987, Doyle learned from the CS branch in
Venezuela that Mederos was having "problems" there. On inquiry
Mederos admitted he had been accused of fraud, but explained it
away as merely "political." Doyle reported the problem at a bank
meeting. At the bank's direction Doyle told Mederos to take the
bulk of his banking business elsewhere based on the rumors of
trouble. CS also directed Doyle to monitor the Mederos' accounts
which remained with CS/Miami. She then referred Mederos to the
Banque Intercommerciale de Gertion (BIG), warning BIG about the
rumors of fraud.
The legal activity began when BIV discovered the fraud and
tried to recoup its letter of credit losses in Florida state court.
BIV secured a temporary injunction against transfers from the
accounts of Mederos, and sent writs of garnishment to fifty Miami
banks. It also sought Mederos' bank records from CS. Mederos had
withdrawn $501,000 from his CS account with checks prepared by
Doyle payable to BIG, and deposited that same amount with BIG. BIG
promptly opened an account in its own name in CS, but it was really
Mederos' account and funded with his money. CS did not inform BIV
of Mederos' interest in that account. Doyle claimed not to know it
was the same money. That money barely escaped being garnished when
BIG directed that this account, with the Mederos' funds, be sent to
CS in Switzerland.2
BIV then expanded its legal efforts and filed this nine-count
complaint against CS and Doyle for their alleged roles in the
conspiracy, theft and laundering of over $1.6 million, which
represented BIV's letter of credit losses. Several RICO counts
were included. The defendants, in addition to denying plaintiff's
allegations, raised affirmative equitable defenses.
An eight-week trial followed in 1994 before a twelve-person
jury. Doyle claimed her Fifth Amendment privilege on some issues.
Each side had evidence to support its allegations. The jury
returned a verdict based on its answers to fifteen questions
covering plaintiff's allegations and defendant's equitable
defenses. On the legal issues the jury found in favor of
defendants. On the equitable defenses of estoppel and in pari
delicto the jury returned advisory findings likewise favorable to
the defendants. The jury, as instructed, did not initially
2
CS informs us in its brief that that money with interest
exceeding $430,000 is now frozen and held for BIV.
consider damages in the questions following the equitable defense
questions. The jury found plaintiff was precluded from recovering
from defendants due to the equitable defenses of estoppel and in
pari delicto. After receiving the verdict, the trial judge, in an
abundance of caution, asked the jury to consider, among other
things, whether it would be appropriate to award BIV any
compensatory or punitive damages. The jury then found no
compensatory damages due BIV from either defendant, but allowed
$25,100 in punitive damages against Doyle. That punitive damage
award was set aside and is not involved as a separate issue in this
appeal.
BIV raises two main issues, both of which concern only the
equitable defenses, in pari delicto and estoppel. First, BIV
argues that the defendants should not have been permitted to assert
their equitable defenses in plaintiff's action at law, although
plaintiff concedes the applicable law is unsettled. Secondly, BIV
claims that it was error in any event for the jury to hear the
equitable defense evidence against BIV at the same time as it heard
the evidence on BIV's allegations against CS and Doyle, because of
the likelihood of confusing and inflaming the jury. Related
evidentiary and instruction matters are also raised.
Issues of law will be reviewed de novo, but the use of an
advisory jury by the district court is reviewed under an abuse of
discretion standard. Fed.R.Civ.Pro. 39(c).
DISCUSSION
I.
The district judge, in his discretion, adopted the advisory
findings of the jury on equitable defenses, rendering those facts
subject to the clearly erroneous standard. BIV attacks the jury's
verdict in favor of the defendants by arguing the culpability of
both defendants. Doyle's conduct, from the evidence, was
questionable. She was, as part of her banking responsibilities, of
assistance to Mederos when he brought the funds to be banked in
Miami. By that time, Mederos already had possession of money from
the fraud in Venezuela. Doyle advised CS/Miami that she had heard
Mederos was having some trouble in Venezuela. If Doyle's former
firm in Panama subsequently helped Mederos establish new Panamanian
corporations to further his scheme, Doyle is not shown to be
responsible for that firm's actions. There is also some evidence
of CS involvement in the fraud when it assisted Mederos in his
banking business at the same time as BIV was attempting to locate
his funds. The defendants, however, did not invent the fraud or
have anything directly to do with BIV's vice president or other
culpable bank employees. We cannot reweigh the evidence and
credibility and reach our own factual conclusions about
culpability. The fact finders, as instructed by the court, did
that under the preponderance of evidence standard or by the clear
and convincing evidence standard as applicable to stolen property
counts. In all instances, the jury found contrary to BIV except on
the punitive damage issue against Doyle. But the small punitive
damage award against Doyle and the finding of no damages against CS
(which could obviously have paid substantial damages) further shows
that the jury viewed the defendant's culpability as limited. We
cannot say the jury's verdict is not sufficiently supported.
II.
BIV also argues that the affirmative defenses should not have
been allowed in BIV's action at law because to consider them was
contrary to the public interest. Public consequences are an
integral factor in the equitable exercise of discretion, as BIV
points out, citing Weinberger v. Romero-Parcelo, 456 U.S. 305, 312,
102 S.Ct. 1798, 1803, 72 L.Ed.2d 91 (1982). That case involved an
injunction sought under a federal statute. The Supreme Court's
comment about the importance of public consequences was made in
connection with "employing the extraordinary remedy of injunction,"
456 U.S. at 312, 102 S.Ct. at 1803, not the use of the less drastic
equitable defenses of in pari delicto and estoppel. BIV also calls
our attention to Pinter v. Dahl, 486 U.S. 622, 108 S.Ct. 2063, 100
L.Ed.2d 658 (1988). In Pinter, an oil and gas securities case, the
Court refers to the in pari delicto defense and mentions in
footnote 12, 486 U.S. at 635, that the defense has rarely
succeeded. However, the Court succinctly states the test:
"[U]nless the degrees of fault are essentially indistinguishable or
the plaintiff's responsibility is clearly greater, the in pari
delicto defense should not be allowed, and the plaintiff should be
compensated", 486 U.S. at 636, 108 S.Ct. at 2073. The jury in the
present case, in which the bank is the plaintiff, however, advised
that BIV's fault was at least equal to or greater than the
defendants. That finding was accepted by the trial judge after a
long trial. We cannot say based on an examination of the record
that the jury's advisory finding of responsibility or culpability
was clearly erroneous.
In Johnson v. Yellow Cab Co., 321 U.S. 383, 64 S.Ct. 622, 88
L.Ed. 814 (1944), likewise cited by plaintiff, it is explained that
the clean hands doctrine is not such a rigid formula as would
eliminate "the free and just exercise of discretion," but depends
on the particular transaction. 321 U.S. at 387-88, 64 S.Ct. at
625. That is the way the district judge approached this present
case. He examined the transactions, and by the exercise of
discretion, with the jury's assistance, the judge reached a result
contrary to BIV.
In response to the findings of the judge and jury that it was
as or more culpable than defendants, BIV argues that it took action
and fired Vice President Miralles and the other employees who
cooperated in the fraud. Those were the persons whose actions
primarily constituted the basis for the affirmative defenses of
defendants. BIV argues the misconduct of its vice president and
its other employees was outside the scope of their employment, and
being contrary to the bank's interests, made the bank a victim.
Therefore, BIV argues, the fraudulent acts should not have been
attributed to it, because that would prevent it from recovering its
losses. But this fraud involved the bank's letters of credit,
which were the sole responsibility of the executive vice president,
the bank's second highest officer.
The case-by-case, particular transaction basis consideration
of equitable defenses such as in pari delicto can be seen in
Batemen Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 105
S.Ct. 2622, 86 L.Ed.2d 215. There the court affirmed the denial of
an in pari delicto defense in a securities fraud case. The
plaintiff had tried to capitalize on insider corporate information
which turned out to be inaccurate, causing plaintiff's losses. The
plaintiff was therefore violating the same laws under which the
plaintiff sought recovery. The in pari delicto defense was held
not applicable because of the significant benefits of exposing
insider trading. 472 U.S. at 315, 105 S.Ct. at 2631. Precluding
the suit would interfere with the enforcement of securities laws
designed to protect the public. Were the situation otherwise, the
Court notes, plaintiff's own culpability, if at least substantially
equal to defendant's, would bar the suit, because of the in pari
delicto defense. 472 U.S. at 310, 105 S.Ct. at 2628-29.
Similarly, in Perma Life Mufflers, Inc., et al v. International
Parts Corp., et al., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982
(1968), a divided Court held that the in pari delicto ("of equal
fault") defense was not applicable to the facts of that case,
because applying the defense would interfere with the antitrust
policy of the government. 392 U.S. at 138-39, 88 S.Ct. at 1984.
In a partial dissent, Justice Harlan, in considering the in pari
delicto defense, noted the complex record and the obscurity of the
law in that area, as we do in the present case. He commented he
would "make no attempt to drain the bog." 312 U.S. at 156, 88
S.Ct. at 1993 (Harlan, J., concurring in part and dissenting in
part). We will follow his example. In this case, as in Bateman
and Perma Life, the court considered the facts and applied the
equitable defenses accordingly, and that is sufficient.
BIV further argues the equitable defenses caused an injustice
and the result is contrary to public policy, citing Schacht v.
Brown, 711 F.2d 1343 (7th Cir.1983), cert. denied, 464 U.S. 1002,
104 S.Ct. 508, 78 L.Ed.2d 698 (1983). In Schacht the Seventh
Circuit was considering a different factual context so the decision
is of limited usefulness in this case. In Schacht when the
Illinois Director of Insurance sued a bank and its directors for
fraud the court found that prolonging the demise of the bank by
fraud was a consequence which could in no way have benefitted the
bank, 711 F.2d at 1348, and so the use of an equitable defense
would have been an injustice contrary to public policy. By
contrast, BIV, though it lost in the end, at least did benefit to
some extent during the fraud's life from the collection of its
customary transaction fees. Thus, its claim of injustice is not as
strong in that regard as in Schacht. Likewise in Quick v. Peoples
Bank of Cullman County, 993 F.2d 793 (11th Cir.1993), another case
in which the bank was the defendant, not the plaintiff, this court
in part considered the benefit the bank derived from a bank
officer's RICO violations and held the bank subject to liability
through the application of respondeat superior. We need not decide
this case, however, solely by extending Schacht or Quick to the
present factual situation.
BIV also argues it would offend public policy for the
defendants as wrongdoers to retain their allegedly fraudulent
gains. It would, BIV claims, provide a sort of immunity to those
defendants who conspire with bank employees. To anoint such
affirmative defenses, BIV argues, would constitute an invitation to
always include some bank employees in planned fraudulent schemes as
a defense against later recoupment by the bank. The bank argues
that the defendants' view of affirmative defenses in effect would
grant immunity to others like the defendants in this case.
Perhaps, but if so then the bank must increase its own vigilance
and supervision to prevent being made a victim by the culpability
of its own responsible officers. In this case the principal
employee at fault was the executive vice president of BIV, and the
bank cannot avoid the consequences for his fraudulent actions
within the scope of his unsupervised duties. If otherwise, a bank
that is found equally or even more culpable than the defendants, as
in the present case, could nevertheless recover for its own
culpability. Plaintiff must be responsible for the actions of its
executive vice president. Trying to decide this particular case
solely upon a public policy basis is futile.
III.
These equitable issues, as the district judge noted, were
briefed and argued at great length and detail prior to and during
trial. He did not bifurcate the case into its legal and equitable
components, finding the equitable defense evidence would in any
event be properly presented to the jury to negate elements of
plaintiff's case. It is also difficult to see how plaintiff could
have presented its own case understandably to the jury without
including the evidence showing how the bank fraud had originated
and developed and become connected with defendants. A legitimate
question would have arisen as to how this fraud could have operated
within the plaintiff bank for so long without being detected.
Excluding all the evidence or admitting only selected parts of the
whole story (as BIV might prefer for its own purposes) would not
have been sufficient. Telling the whole story was justified. A
bifurcated trial would have resulted in the trial judge hearing two
substantially similar trials.
The district judge instructed the jury in detail on the two
aspects of the case, both legal and equitable, cautioning the jury
that it must separately consider each claim and the evidence
related to it. The unanimous jury verdict was "no" on all of the
interrogatories regarding plaintiff's allegations. Then followed
the equitable defense questions. The jury's unanimous answers were
"yes" as to whether BIV should be estopped as to both defendants.
The answer again was "yes" as to whether BIV bore equal or greater
fault for the fraud than the defendants. The jury was further
instructed that if the answer to either of the above questions was
"yes", as was the case, then BIV was precluded from recovery on any
of its claims. If the jury's answer, however, was "no" then there
were several additional questions to be answered including a
question as to damages. So far as the jury was concerned, the
plaintiff simply failed in its proof on all claims. There was no
sign of jury confusion. No questions came from the jury to the
judge. Unless there was error, as claimed by BIV, because its
allegations were somehow tainted by being tried with the equitable
offenses, BIV cannot prevail. We find that was not the case.
In the particular circumstances of this case, one full of
mutual accusations of wrongdoing, we find no confusion and no
affront to public policy where the jury finds that the plaintiff,
who seeks recovery, was at least equally or more culpable for the
cause of its troubles than the defendants. Even assuming the
defendants were wrongdoers, and there was evidence to that effect,
the jury and the judge considered the apportionment of culpability.
Equity will leave the parties as they are and not step in to help
the equal or major wrongdoer who first caused the problem to recoup
its losses.
Miralles, the executive vice president of BIV, was in total
control of the letters of credit department, and the letters of
credit were the instruments of the fraud. He was no ordinary
employee, but the second highest ranking employee of the bank. He
was not supervised in regard to letters of credit. He accepted a
bribe and grossly violated the trust that had been imposed in him.
The fraud was a continuing one, not an isolated act. It was all
within the scope of Miralles' banking responsibilities. The
letters of credit themselves and the way they were documented
appear to have been at least suspicious and inadequate; to borrow
an apt term, they were "chimbo." Nevertheless, during the
functioning of this fraud within its own walls, BIV received some
income in its normal course of business from the letters of credit.
If we were to assume the truth of all the allegations, inferences,
and innuendos each party has levelled at the other, which we need
not do since the fact finders have reasonably sorted it out, we
would see no reason for the court to try to apportion the loss on
some basis among the wrongdoers themselves. Public policy would
not be served by allowing the bank to recoup what it lost because
of the very high level of fraud within its own doors.
The trial judge, in ruling on objections and the admission of
evidence and his full and clear instructions to the jury, when
viewed as a whole, did as well as any one reasonably could. As to
the equitable matters we find no abuse of discretion. We find no
need to disturb the jury's verdict on plaintiff's allegations nor
its advisory judgment on the equitable defenses adopted by the
trial judge. If there was any error in this long, unusual, and
complicated case, it was of no consequence. The other lesser
related matters raised by BIV are without merit. We do not intend
with this case to "drain the bog" in the words of Justice Harlan,
nor do we intend to deepen it in this area of the law, only to
decide this particular case on its own facts.
The plaintiff is not entitled to a new trial, and we AFFIRM
the district court in all respects.