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AVIANCA, INC. v. CORRIEA

February 6, 1989

AVIANCA, INC. et al., Plaintiffs,
v.
MARK F. CORRIEA, et al., Defendants



The opinion of the court was delivered by: LAMBERTH

 ROYCE C. LAMBERT, UNITED STATES DISTRICT JUDGE

 Plaintiffs Avianca, S.A., the major airline and flagship international carrier of the Republic of Colombia, and its related Colombian and United States companies and subsidiaries, brought this action against their former attorney, Mark Corriea, a District of Columbia licensed practitioner, and his partner and law firm, for breach of fiduciary duty, fraudulent misrepresentation, and civil violations of Title IX of the Organized Crime Control Act of 1970, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq. More particularly, plaintiffs allege that after having entered into an on-going attorney-client relationship with one or more of the plaintiff companies in 1980, for which defendants were paid over $ 1,000,000.00 in legal fees over the next five years, defendants breached their ethical and fiduciary obligations to plaintiffs by, among other things, misappropriating client funds, acquiring and maintaining undisclosed financial interests in transactions involving plaintiffs, and secretly dealing with the then president of plaintiff Avianca, S.A. Plaintiffs seek a full accounting, disgorgement of all profits, and return of all attorneys fees paid over the five year period. Defendants first deny that there was an on-going, continuous attorney-client relationship, and instead characterize their services as "occasional." Defendants then categorically deny any breach of ethical or fiduciary duty which may have been owed to plaintiffs, and maintain that they acted with the full knowledge and tacit approval of plaintiffs. Finally, defendants counterclaim for libel and slander, interference with their prospective advantage, breach of contract, and indemnification. Jurisdiction for both the complaint and counterclaim is properly grounded in 28 U.S.C. § 1332(a)(3), there being complete diversity of citizenship between the parties.

 The record in this case is extensive and complex, comprising several hundred docket entries, thousands of pages of court record, and nearly seventy motions. The case comes before this Court presently on eight motions and cross-motions, including plaintiffs' motion to compel production of documents, defendants' motion for reconsideration of the magistrate's order to produce documents, plaintiffs' motion to compel Andres Cornelissen to answer the amended complaint, defendants' motion for summary judgment on the complaint, defendants' motion for partial summary judgment on count 1 (defamation) of the counterclaim, plaintiffs' cross-motion for summary judgment on count 1 (breach of fiduciary duty) of the complaint, plaintiffs' cross-motion for summary judgment on count 1 (defamation) of the counterclaim, and plaintiffs' motion to compel defendant Corriea to answer interrogatories and produce documents with respect to his medical condition and financial statements.

 I. FACTS

 Notwithstanding the legal morass created by the parties, most of the essential facts underlying this case are undisputed or beyond serious dispute. Where there is significant disagreement is in regard to the legal interpretation or appropriate characterization of these underlying facts.

 A. Parties

 Plaintiff Aerovias Nacionales de Colombia, S.A. ("Avianca, S.A.") is a corporation organized and existing under the laws of the Republic of Colombia. It operates Avianca airlines, providing domestic and international service from Colombia. Plaintiff Avianca, Inc., is a New York corporation wholly owned by Avianca, S.A., and serves as the airline's general agent in the United States. Plaintiff Helicopteros Nacionales de Colombia, S.A. ("Helicol"), is a Colombian corporation operating a fleet of helicopters and fixed-wing aircraft in Colombia and other South American countries. Plaintiff Sociedad Aeronautica de Medellin Consolidada, S.A. ("SAM"), is a Colombian corporation providing domestic air service within Colombia. Avianca, S.A. is the majority shareholder of both Helicol and SAM. Plaintiff North American Air Service Company, Inc. ("Norasco"), is a Delaware corporation wholly owned by Avianca, Inc. Norasco was created to take advantage of a bilateral treaty provision, Relief From Double Taxation on Earnings From Operation of Ships and Aircraft, 12 U.S.T. 3141, T.I.A.S. No. 4916 (1961), which exempts Colombian withholding taxes of approximately 45%, and serves as a conduit for lease payments made by Avianca, S.A., Helicol, and SAM to aircraft lessors in the United States.

 B. Attorney-Client Relationship and Breaches of Fiduciary Duty

 By representing Avianca, S.A., and its related companies and subsidiaries, over a period of several years, Corriea, and later his law firm, certainly created and maintained an attorney-client relationship. Indeed, even defendants describe themselves as plaintiffs' "former counsel." Memorandum of Points and Authorities in Support of the Motion of Defendants-Counterplaintiffs for Summary Judgment (hereinafter "Defendants' Memorandum") at 1. Plaintiffs primarily rely on Corriea's undisputed actions in three transactions to demonstrate that Corriea breached his fiduciary duties of loyalty and full disclosure in his representation of plaintiffs.

 1. Use of Norasco Funds.

 One of Corriea's earliest services for Avianca, S.A., was the creation of Norasco. Corriea, as Avianca's attorney, incorporated Norasco and agreed to serve as Norasco's president and attorney. Avianca gave Corriea $ 7,000 in January 1980 to cover the cost of Norasco's stock, as well as Corriea's legal fees and incurred expenses. Pursuant to Avianca's instructions, Corriea registered legal title to the Norasco stock in his name, but endorsed the shares over to Avianca, Inc., and sent the certificates to Avianca, S.A. Over the next two years, while president of and attorney for Norasco, Corriea admittedly issued or caused to be issued over $ 240,000.00 in checks payable to cash, himself, his law firm, and Fund Sources International, Inc. ("FSI"), a company wholly owned by Corriea. Corriea does not dispute that the funds were often used for his personal expenses, including repairs to a Rolls Royce automobile jointly owned by Corriea and Cornelissen, and typically used without the consent or knowledge of the plaintiffs; rather, Corriea insists that as president and sole shareholder of Norasco, he was entitled to "use corporate assets as he sees fit and may even appropriate those assets for his own use." Defendants' Memorandum at 25.

 2. American Aerospace, Limited.

 Nearly a year after the creation of Norasco for Avianca, Corriea again incorporated a closely held company, this one an off-shore company for the sole benefit of Andres Cornelissen. The company, American Aerospace, Limited ("AAL"), was incorporated in Bermuda on August 3, 1981, with Corriea as its president, chairman and lawyer. Cornelissen, the sole beneficial owner, held no stock in his own name, nor a position in the company, and his connection with AAL was not disclosed to Avianca, S.A. until discovery in this case. AAL was only involved in one transaction prior to being dissolved in 1985. Soon after the creation of AAL, Cornelissen and Corriea, through FSI, arranged a lease of two Boeing 707 aircraft to Faucett Airlines, a Peruvian company, with aircraft maintenance to be provided by Avianca, S.A. Still not disclosing Cornelissen's interest in AAL, nor his own interest in FSI, when Faucett defaulted on the lease agreement a few months later, Corriea threatened Avianca, S.A. with litigation unless it returned some $ 149,000.00 in engine reserve funds it held in escrow for Faucett. Corriea claims that the documents involving AAL are covered by an attorney-client privilege between him and AAL, despite the fact that he was, for all intents and purposes, both the lawyer and the sole officer of the company.

 3. Twin Otter Transaction.

 At about the same time that Corriea and Cornelissen were negotiating the Faucett transaction on behalf of AAL and FSI, Helicol, a wholly owned subsidiary of Avianca, S.A., was negotiating the purchase of a Twin Otter aircraft from a Canadian aircraft company, DeHavilland. After verifying that Corriea could arrange lease financing for Helicol, Cornelissen instructed the general counsel of Helicol to contact Corriea for assistance in obtaining the Twin Otter aircraft. Corriea, acting as the president of FSI, sent Helicol a proposal for lease of a Twin Otter in November 1981. Subsequently, Corriea, again acting as the president of FSI, sought financing from Export Development Corporation ("EDC"), a Canadian investment firm. By March 1982, FSI was still unable to obtain the needed financing from EDC, and Helicol informed Corriea that it therefore intended to purchase the aircraft directly from DeHavilland. Corriea responded by telex, stating that FSI would not accept Helicol's withdrawal, and would consider that withdrawal a violation of the agreement, subjecting Helicol to liability for FSI's losses. That same day, unbeknownst to Helicol, or Avianca, Andres Cornelissen wired $ 247,000 into FSI's Chase Manhattan account. *fn1" Corriea admits using at least $ 130,000 of Cornelissen's loan to consummate the EDC financing transaction. FSI thereafter obtained two Twin Otter aircraft, and leased them to Norasco for sublease to Helicol. Corriea admits having represented both FSI and Norasco in the Twin Otter transaction, but denies having represented Helicol or Avianca, S.A. Further, he argues that he adequately and effectively disclosed his financial interest in FSI to Helicol prior to the transaction.

 C. Andres Cornelissen

 Avianca, S.A.'s former president, Andres J. Cornelissen, has been a mysterious, silent party to this litigation for over two years, and has yet to appear before this Court personally or through counsel. The chronology of Cornelissen's role in this case dates back to plaintiffs' July 25, 1986, motion to join Cornelissen as an additional party and amend their complaint. Defendants opposed that motion, arguing that the Court lacked subject matter jurisdiction, there being neither diversity nor federal question jurisdiction, and that adding Cornelissen as a party defendant would unduly delay the trial to the prejudice of the then existing defendants. On August 8, 1986, the magistrate denied plaintiffs' motion to join Cornelissen. Thereafter, on August 15, 1986, plaintiffs moved the Court to reverse the magistrate's order, arguing that the Court had both diversity and federal question jurisdiction, and that by not allowing the joinder of Cornelissen, purportedly a co-conspirator of Corriea, the Court would cause great hardship and prejudice to plaintiffs and needlessly require duplicative lawsuits. Defendants again objected to the joinder, repeating their earlier argument, and adding that the Court lacked personal jurisdiction, that venue in the District of Columbia was inappropriate, and that the dispute between Avianca, S.A. and its former president was best left to Colombian courts. After a hearing on the matter, on August 25, 1986, the Court reversed the magistrate's order, permitting plaintiffs to join Cornelissen and amend their complaint. In their amended complaint, plaintiffs alleged that Cornelissen (1) conspired with Corriea to breach Cornelissen's fiduciary duty as an officer of plaintiff Avianca, S.A., (2) fraudulently misrepresented or failed to disclose material facts in transactions involving plaintiffs and Corriea, and (3) committed civil violations of RICO as a co-conspirator of Corriea.

 Following the Court's August 25, 1986 order, plaintiffs were utterly unsuccessful in their attempts to serve Cornelissen, a Colombian citizen and (apparently) frequent world traveller, personally. Nor were they successful in serving Cornelissen through his known District of Columbia contacts. On October 24, 1986, both Corriea and Cornelissen's District of Columbia counsel, Fulbright & Jaworski, objected to plaintiffs' attempts to serve process on Cornelissen through his attorneys. Specifically, Corriea argued that there was no provision for allowing service through another party defendant; that service through AAL, which once shared FSI's District of Columbia mailing address, was impossible, because AAL had been dissolved; and that RICO did not authorize service in a foreign country. Fulbright & Jaworski, appearing for the limited purpose of opposing service on Cornelissen through its firm, argued that such alternative service would impermissibly impede their attorney-client relationship with Cornelissen, and that alternative service under the Federal Rules was inappropriate in any event, because neither the D.C. long arm statute nor federal law authorized service under the facts of the case. On October 27, 1986, during a hearing on the matter, the defendants and intervenor conceded that they were not in a position to directly challenge the Court's exercise of personal jurisdiction over Cornelissen, because to do so would have admitted the very agency relationship with Cornelissen they each adamantly repudiated. While the Court agreed that service via a law firm was probably inappropriate, it ordered a further evidentiary hearing to determine the whereabouts of defendant Cornelissen in order to determine a more appropriate means of effecting service of process.

 The evidentiary hearing was held on November 5, 1986, and the Court, after hearing testimony from defendant Corriea, found that Cornelissen was aware that he had been joined as a party defendant, and was actively avoiding service of process. In that hearing, Corriea testified that he had last met with Cornelissen in person during the summer of 1986 in the south of France, where Cornelissen was vacationing. Corriea had had frequent telephone conversations with Cornelissen since that meeting, and was keeping Cornelissen apprised of the developments in the case. Further contacts between Corriea and Cornelissen were likely, given their ongoing personal and financial relationships. For example, Corriea, on Cornelissen's request, sold their jointly-owned Rolls Royce, as well as Cornelissen's "small BMW," and sent Cornelissen's share of the proceeds to his estranged wife in California, where she lives with Cornelissen's three children. Furthermore, the law firm of Corriea & Tierney had been paying credit card and other bills for Corriea, and had bought an automobile for and transferred funds to Cornelissen's daughter, a student at Stanford University. Concluding that Cornelissen had ample notice of the proceedings against him, if not valid service of process, and certainly had been given an opportunity to protect his interests, the Court on November 24, 1986, authorized alternative service of process. Specifically, plaintiffs were directed to send the summons and complaint by certified mail to nine addresses within the United States and abroad, with which Corriea was likely to have contact. Having complied with the Court's order, but having received no response whatsoever from Cornelissen, plaintiffs now seek to compel Cornelissen to answer the amended complaint.

 D. Counterclaims of Defamation

 During the month of August 1985, a number of events took place at Avianca, S.A., culminating in the later filing of the instant action and the resultant counterclaims. Earlier that summer, Avianca had conducted an internal audit of its wholly owned American corporation, Norasco, and discovered that Corriea had made what Avianca considered unauthorized withdrawals amounting to some $ 240,000.00 from Norasco's account. Then, in early August, 1985, Avianca officials began to question the integrity and propriety of Corriea's handling of another matter involving Norasco, the Twin Otter lease transaction, and sought the opinion of an independent District of Columbia law firm, Holland & Knight, with a view towards possible litigation against Corriea. In mid-August, in the midst of a shareholder dispute, Avianca's president, Andres Cornelissen resigned. On August 19, 1985, Avianca terminated the services of Corriea and his law firm. Immediately prior to the termination, Avianca officials had met with William Bell, of Holland & Knight, to seek his opinion regarding the propriety of Corriea's multiple roles in the Twin Otter transaction. Mr. Bell rendered an opinion letter, which concluded that Corriea's multiple roles in the Twin Otter transaction, serving as counsel for Avianca and Norasco and as a principal for FSI, was on its face a breach of his ethical obligations, unless he made a "complete and full disclosure of all facts and circumstances . . . to Avianca, and Avianca at an appropriate level of management, agreed to his actions." Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion for Partial Summary Judgment and in Support of Plaintiffs' Cross-Motion for Summary Judgment as to Count 1 of Defendants' Counterclaims, Appendix at 210 (hereinafter referred to as the "Holland & Knight opinion letter"). Mr. Bell's letter was sent to the acting president of Avianca, who circulated it among the Board of Directors and General Counsel for Avianca. Within a matter of weeks, Avianca brought this action against its former counsel. Defendants' counterclaims of defamation also have their genesis in the Holland & Knight opinion letter.

 Defendants' counterclaims of defamation are based on two separate publications of allegedly false and defamatory statements about defendant Corriea and his law firm. First, on September 8, 1985, five weeks prior to the beginning of the instant action, El Tiempo, a major Colombian newspaper, ran an article describing the internal strife at Avianca. In writing the article, the paper interviewed both Avianca's acting president, Hernando Castilla Samper, and Mark Corriea. The article noted that Avianca had "contracted . . . the services of a law firm to study the judicial conduct of Corriea in the leasing of the airplanes for Helicol," and that according to that law firm, Corriea's multiple roles in the transaction could be sanctionable conduct "unless Corriea can prove that he informed Avianca about the business deal and that Avianca approved it." Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion for Partial Summary Judgment and in Support of Plaintiffs' Cross-Motion for Summary Judgment as to Count I of Defendants' Counterclaims, Appendix at 215 (hereinafter referred to as the " El Tiempo article"). Nowhere in the article is the actual Holland & Knight opinion letter quoted, although defendants insist that the letter itself was "leaked" to the press, and that plaintiffs therefore negligently allowed publication of the purportedly defamatory statements in the letter. Memorandum of Points and Authorities in Support of the Motion of Defendants-Counterplaintiffs for Partial Summary Judgment at 10. Finally, it is worth noting that the article was balanced inasmuch as it gave Corriea equal time in disputing Avianca's allegations and in making counter-allegations.

 The second allegedly defamatory act occurred some three months after the filing of the instant action, in January 1986, when Edgar Lenis, then president of both Avianca, Inc. and Norasco, was interviewed for a live broadcast on a Colombian radio station. During the course of that interview, which was subsequently reported in the following day's El Tiempo, Mr. Lenis noted that Avianca had filed suit against Corriea, and essentially repeated the various allegations in the complaint. Specifically, Lenis accused Corriea of making unauthorized withdrawals from Norasco accounts and of violating his ethical obligations in connection with the Twin Otter transaction. Memorandum of Points and Authorities in Support of the Motion of Defendants-Counterplaintiffs for Partial Summary Judgment at 11.

 Significantly, plaintiffs do not dispute that any of the above statements about Corriea were made. Rather, the dispute lies in the truth of those assertions, and which, if any, of them are properly considered defamatory. Defendants' counterclaims are, of course, premised on the argument that the statements were defamatory, and that plaintiffs, either by design or negligence, caused those statements to be published, to the professional harm of defendants.

 II. DISCUSSION

 A. Discovery Motions

 1. Plaintiffs' Motion to Compel Production of American Aerospace, Limited (AAL) Documents and Defendants' Motion for Reconsideration of the Magistrate's Order to Produce Aradyne Documents.

 Of the eight pending motions and cross-motions currently before the Court, plaintiffs' motion to compel production of AAL documents, and defendants' motion for reconsideration of the magistrate's order to produce Aradyne documents, are the most procedurally convoluted and intricate.

 a. American Aerospace, Limited (AAL) Documents.

 On June 27, 1986, plaintiffs served their second set of interrogatories and second request for production of documents on defendant Corriea. Both of the requests focused on Corriea's corporate interests and affiliations, including, specifically, American Aerospace, Limited -- the off-shore, Bermuda corporation he formed for the benefit of Cornelissen -- and its wholly owned Bermuda subsidiary, Aradyne Limited. Aradyne Limited shares the same structure as AAL; that is, 100% beneficial ownership by Cornelissen with Corriea serving as President and Chairman of the Board. Aradyne Limited was formed at the behest of another corporation with connections to Corriea, Aradyne Corporation of Nevada. In response to plaintiffs' second set of interrogatories, Corriea refused to divulge the names of his corporate affiliations, claiming they were completely unconnected with this case. To the second request for production of documents, Corriea withheld seventy-two documents ("AAL documents"), with respect to which he claimed an attorney-client privilege. Specifically, Corriea claimed that "these documents relate to legal services performed for or on behalf of AAL by Mark F. Corriea, Corriea & Tierney, or Appleby, Spurling & Kempe, AAL's counsel in Bermuda." Defendants' Response to plaintiffs' Second Document Request. On August 8, 1986, plaintiffs moved to compel Corriea to answer the second set of interrogatories and produce documents related to his response. Magistrate Attridge, on September 10, 1986, granted plaintiffs' motion, and directed Corriea to "file full and responsive answers to plaintiffs' second set of interrogatories and produce documents identified in or connected with his responses to the aforesaid interrogatories which relate to any and all subsidiaries, divisions or affilitates [sic] of American Aerospace, Ltd., Aradyne-Limited and Aradyne-Inc." Then on October 16, 1986, plaintiffs moved to compel production of the seventy-two AAL documents withheld in response to their second request for production of documents, to wit, the AAL documents relating to the corporation's single business transaction prior to its dissolution in 1985, the lease of a Boeing 707 to Faucett and accompanying maintenance agreement with Avianca. Plaintiffs argued that defendants had failed to meet their burden of establishing that an attorney-client privilege protected the documents from discovery, reasoning that because there was no attorney-client relationship between Corriea, AAL's president and chairman as well as attorney, and Cornelissen, the 100% beneficial owner of the corporation, there could be no valid privilege. Nor, plaintiffs further argued, could business partners ever claim to share a privileged relationship simply because one of them is licensed to practice law. In response, defendants released, without explanation, fifteen of the previously withheld documents, but argued that, contrary to plaintiffs' misconstrual of the asserted privilege, the remainder were all covered by an attorney-client privilege between Corriea and the corporate body of AAL, rather than between Corriea and Cornelissen. In their reply memorandum, plaintiffs continued to argue that there could be no valid privilege, asserting, without any cited authority, that "since a corporation acts only through human beings, the Court must first identify the human being who has instructed defendants to assert their present claim." Reply to Defendants' Opposition to Plaintiffs' Motion to Compel Production of Documents at 1. On November 7, 1986, Magistrate Attridge ordered the disputed documents submitted for in camera review. Thereafter, defendants submitted twenty-five documents, but turned over thirty-five others to plaintiffs without any further objection to their discovery. On December 1, 1986, Magistrate Attridge granted plaintiffs' motion with respect to some, but not all, of the AAL documents that had been submitted. Subsequent to that December I, 1986 order, defendants submitted still more AAL documents for in camera review. The magistrate did not yet make a ruling with respect to these most recently submitted documents.

 b. Aradyne Corporation and Aradyne, Limited Documents.

 In a July 2, 1987 hearing, defendants requested reconsideration of the magistrate's order requiring production of Aradyne Corporation and Aradyne, Limited documents (hereinafter collectively referred to as "Aradyne documents"), arguing that the documents exceeded the scope of permissible discovery in that they were unrelated to the instant litigation. At the end of the July 2, 1987 hearing, the Court orally referred the matter back to the magistrate for a determination as to the relevance of the documents sought. On August 11, 1987, after a hearing on the matter, Magistrate Attridge ordered defendants to submit a Vaughn index of all the contested Aradyne documents. The following week, on August 17, 1987, defendants submitted the required Vaughn index, reasserting their argument that the documents had "no relevance to any of the issues or claims in this litigation and are not reasonably calculated to lead to the discovery of admissible evidence. Moreover, defendants asserted, "some of the documents constitute ...


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