Source: https://law.justia.com/cases/federal/district-courts/FSupp/693/666/2357289/
Timestamp: 2020-08-14 22:22:59
Document Index: 784148645

Matched Legal Cases: ['§ 1971', '§ 1972', '§ 1961', '§ 1962', '§ 1972', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1962', '§ 1964', '§ 1962', '§ 1962', '§ 1962']

Mid-State Fertilizer v. Exch. Nat. Bank of Chicago, 693 F. Supp. 666 (N.D. Ill. 1988) :: Justia
Justia › US Law › Case Law › Federal Courts › District Courts › Illinois › Northern District of Illinois › 1988 › Mid-State Fertilizer v. Exch. Nat. Bank of Chicago
Mid-State Fertilizer v. Exch. Nat. Bank of Chicago, 693 F. Supp. 666 (N.D. Ill. 1988)
U.S. District Court for the Northern District of Illinois - 693 F. Supp. 666 (N.D. Ill. 1988)
Plaintiff's amended complaint contains four federal counts and nine pendent state law counts. The parties agree Illinois law controls on the state counts. The thirteen *669 counts are designated as follows: I12 U.S.C. § 1971 Tying Arrangement; II12 U.S.C. § 1972 Tying Arrangement; III18 U.S.C. § 1961 RICO; IV18 U.S.C. § 1962 RICO; VCommon Law Fraud; VI Breach of Fiduciary Duties; VIIBreach of Duty as Agent; VIII & IXBad Faith Dealing/Breach of Contract; XTortious Interference with and Control of Business; XI, XII & XIIIDefamation. Counts I, III, V, VI, VIII, X, and XI are brought by Mid-State. Counts II, IV, and IX are brought by the Kimmels. Count XII is brought by Lasley Kimmel and Count XIII by Maxine Kimmel. Defendant has moved for summary judgment on all counts.
On a motion for summary judgment, the entire record is considered with all reasonable inferences drawn in favor of the nonmovant and all factual disputes resolved in favor of the nonmovant. Oxman v. WLS-TV, 846 F.2d 448, 452 (7th Cir. 1988); Jakubiec v. Cities Service Co., 844 F.2d 470, 471 (7th Cir. 1988). The burden of establishing a lack of any genuine issue of material fact rests on the movant. Id. at 473. The nonmovant, however, must make a showing sufficient to establish an essential element for which it will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). In such instances, the movant need not provide affidavits or deposition testimony showing the nonexistence of these essential elements. Id. at 324, 106 S. Ct. at 2553. Also, it is not sufficient to show evidence of purportedly disputed facts if those facts are not plausible in light of the entire record. Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 476-77 (7th Cir.1988).
Defendant argues plaintiffs have no standing under the Bank Holding Company Act ("BHCA"). Section 1975 of Title 12 provides that any person injured in his business or property by reason of anything forbidden by 12 U.S.C. § 1972 may bring a suit for damages under the BHCA. Standing under the BHCA has been limited to direct injuries. See Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440 (5th Cir.), cert. denied, 476 U.S. 1159, 106 S. Ct. 2279, 90 L. Ed. 2d 721 (1986); Omega Homes, Inc. v. Citicorp Acceptance Co., 656 F. Supp. 393, 403 (W.D.Va.1987). See also Sundance Land Corp. v. Community First Federal Savings & Loan Association, 840 F.2d 653, 660 (9th Cir.1988). A stockholder who is injured merely because the value of his investment in a company suffering BHCA violations has dropped does not have standing under the BHCA. See Campbell, supra; Sundance supra; Costner v. Blount National Bank of Maryville, Tennessee, 578 F.2d 1192, 1195 (6th Cir.1978). However, where the stockholder was also the guarantor of the loan and therefore a customer of the bank, the stockholder has standing. Swerdloff v. Miami National Bank, 584 F.2d 54, 60 (5th Cir.1978); Continental Illinois National Bank & Trust Co. of Chicago v. Stanley, 585 F. Supp. 1385, 1388 (N.D.Ill. 1984). Defendant tries to limit Swerdloff and Stanley to injuries in a plaintiff's capacity as guarantor. It is clear, however, that Swerdloff is not so limited. See id., 584 F.2d at 58-60. Stanley follows Swerdloff and refers principally to the conclusion that guarantors are customers and therefore have standing. Judge Bua concluded that Stanley had standing as a stockholder and guarantor. Stanley, 585 F. Supp. at 1388. If defendant's analysis was true, Stanley would only have had standing as a guarantor. This court agrees with Swerdloff and Stanley. The Kimmels were customers of Exchangeto the extent they suffered injury from the tying arrangement, they have standing under the BHCA.
It is clear that violations of § 1962(c) only require a causal relationship between the predicate racketeering acts and injury; there is no requirement of injury caused by a pattern of racketeering. Sedima, 473 U.S. at 497, 105 S. Ct. at 3285; Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F.2d 384, 398 (7th Cir. 1984), aff'd, 473 U.S. 606, 105 S. Ct. 3291, 87 L. Ed. 2d 437 (1985) (per curiam). Haroco was limited to § 1962(c), 747 F.2d at 387, and Sedima also involved only a § 1962(c) violation, 473 U.S. at 496, 105 S. Ct. at 3285. But there is broad language in both opinions that indicates injury caused by predicate racketeering acts is sufficient for any type of § 1962 violation. Also, both cases reject the view that there must be a causal relationship between every element of a RICO claim and the injury. See Sedima, *672 473 U.S. at 495-97, 105 S.Ct. at 3284-85; Haroco, 747 F.2d at 397.[5]
The § 1962(a) cases cited above were, with one exception, decided subsequent to Sedima. They distinguish § 1962(a) from § 1962(c) on the grounds that the "essence" of a § 1962(c) violation is the predicate act, Sedima, 473 U.S. at 497, 105 S. Ct. at 3285, while the "nature" of a § 1962(c) violation is the use of the illicit gains. See, e.g., Grady, 681 F. Supp. at 556. But the nature of a § 1962(c) violation is not just commission of the predicate acts, it is commission of a pattern of predicate acts. Still, there is no requirement that the injury be caused by the pattern as compared to being caused by an individual predicate act. Marshall & Ilsley Trust Co. v. Pate, 819 F.2d 806, 809-10 (7th Cir.1987). Although each subsection of § 1962 delineates a different type of RICO violation,[6] the essence of each subsection is still the commission of racketeering acts. This court is not concerned with semantical differences between Sedima's use of "essence" and other court's use of the term "nature." The point is that when Sedima refers to the essence of a RICO violation, 473 U.S. at 497, 105 S. Ct. at 3285, the predicate offense is what is being referred to, not also the other elements that are necessary to constitute a violation of any subsection of § 1962. Reading Sedima otherwise would be inconsistent with its rejection of the requirement of "racketeering injury" and rejection of the requirement of each element of a RICO violation being a cause of injury. It would also be inconsistent with the Seventh Circuit's decision in Haroco which this court is also bound to follow.
The minority view is also consistent with the policy of liberally construing RICO to effectuate its remedial purposes. See Sedima, 473 U.S. at 498, 105 S. Ct. at 3286; Smith, 678 F. Supp. at 829. See also Jones v. Lampe, 845 F.2d 755, 756-57 (7th Cir. 1988). Contrary to the view expressed in Grady, this is a standard rule of statutory analysis, not "treat[ing] civil RICO as though it falls wholly outside the legal principles that normally apply to statutes and their application." 681 F. Supp. at 555. The language of § 1964(c)"by reason of a violation of section 1962"does not have to be given a "strained reading," id. at 556, to construe it as including injuries caused by predicate acts that are part of a § 1962(a) violation. It can be given a narrow, but still reasonable, reading that produces the result of the majority view. But that should not be done when such a reading would be inconsistent with the holdings of Sedima and Haroco and inconsistent with the clear rule that RICO is to be broadly construed. It is for Congress, not the courts, to narrow down what may be viewed as an excessively broad statute. See Sedima, 473 U.S. at 497-500, 105 S. Ct. at 3285-3287. Additionally, RICO was intended to reach both "legitimate" and "illegitimate" enterprises. Sedima, 473 U.S. at 499, 105 S. Ct. at 3286. Following the majority view would effectively protect corporate defendants from liability in most instances since subsections (a) and (b) would have the narrow construction and under subsection (c) a corporation cannot be both the defendant and the required "enterprise." See Smith, 678 F. Supp. at 829.
The standing of the Kimmels, however, is different. As with Mid-State, they need only show injury caused by the predicate offenses. Unlike Mid-State, they face the problem that they cannot rely on the indirect injury they suffer as a result of their being shareholders and employees of a corporation that suffers direct injury. Rand v. Anaconda-Ericsson, Inc., 794 F.2d 843, 849 (2d Cir.), cert. denied, 479 U.S. 987, 107 S. Ct. 579, 93 L. Ed. 2d 582 (1986); Warren v. Manufacturers National Bank of Detroit, 759 F.2d 542, 544-45 (6th Cir.1985); Coronet Insurance Co. v. Seyfarth, 665 F. Supp. 661, 670 (N.D.Ill. 1987). They also cannot have standing as guarantors if they are merely claiming the indirect injury of having to make good on their guarantees after the principal obligor suffered RICO injury. Continental Illinois National Bank & Trust Co. of Chicago v. Windham, 668 F. Supp. 578, 585-86 (E.D.Tex.1987); Grant v. Union Bank, 629 F. Supp. 570, 573 (D. Utah 1986). It is clear that the Kimmels have no standing as to the guarantees to the suppliers. The guarantee on the credit from Exchange is different. It is not merely a matter of having to make good on a guarantee. It is also alleged that the Kimmels provided the guarantee after being fraudulently induced to do so by Exchange's commission of predicate acts. Their being guarantors of the loan was purportedly a direct result of the RICO violations. They then suffered injury as a result of being guarantors. Even if Exchange did not cause Mid-State to go out of businessor even if it did, since Exchange's actions toward Mid-State standing alone would still be only indirectly related to the Kimmelsthe Kimmels would have standing. There can be more than one proximate cause of an injury. Mid-State's going out of business and Exchange's fraudulent inducement of the Kimmels into becoming guarantors would both be proximate causes of the Kimmels' injury.
It is uncontested that Exchange promised to immediately credit the loan with deposits into the lock box, but that it did not always do so. The question is whether Exchange intended at the time of contracting to delay applying credits to the loan. Exchange also argues there is inadequate proof of fraud in that the purported misrepresentations have not been shown to be material. As with a number of other issues, plaintiffs failed to respond to this latter argument. As with common law fraud, materiality is an element of RICO mail fraud. Grantham & Mann, Inc. v. American Safety Products, Inc., 831 F.2d 596, 606 (6th Cir.1987); Dunham v. Independence Bank of Chicago, 629 F. Supp. 983, 987 & n. 4 (N.D.Ill.1986); North American Financial Group, Ltd. v. S.M. R. Enterprises, Inc., 583 F. Supp. 691, 697-98 (N.D.Ill.1984). A fact is material if, knowing the truth, the plaintiff would have acted differently. North American, 583 F. Supp. at 698. Defendant has pointed to evidence that plaintiffs knew of the failure *674 to immediately credit the loan shortly after such action began. They were unhappy with the situation, but still renewed the loan in December. It was also stated that it "was not that big a problem." Plaintiffs have not disputed these facts or the inference that can be drawn from them either in their brief or in the statement of genuine issues. They must be assumed to be true and it must be inferred that knowledge of the delays would not have affected plaintiffs' conduct. These facts show that any misrepresentation that may have been made was not material.
[1] Two other defendants were dismissed when their motion pursuant to Fed.R.Civ.P. 12(b) (6) was granted.
[6] Section 1962(a) focuses on investment of racketeering income, § 1962(b) on gaining control of an enterprise through racketeering acts, and § 1962(c) on engaging in racketeering acts while participating in the activities of an enterprise. See Grady, 681 F. Supp. at 556.