Opinion ID: 72909
Heading Depth: 5
Heading Rank: 1

Heading: Konstand

Text: Konstand contends that he has suffered three distinct injuries that give him RICO standing. First, he contends that the defendants conspired to unlawfully wrest his shares of BCI stock from him. Although this alleged injury is direct, it does not constitute a RICO claim that is still viable, because it occurred in 1975, eight years before Konstand filed this lawsuit. In our previous opinion in this case, we held that Konstand’s claims relating to this injury are time-barred. See Bivens, 906 F.2d at 1555. Accordingly, this injury cannot be the basis for a viable RICO claim. Second, Konstand alleges that his status as a pledgor of stock gives him RICO standing. He points out that a pledgor of stock has a stake in a corporation that transcends that of a mere shareholder, and that difference in stake may allow the pledgor to sue management directly in situations where a shareholder could not. See Citibank, N.A. v. Data Lease Financial Corp., 828 F.2d 686, 693 (11th Cir. 1987) (citing Empire Life Ins. Co. of 13 America v. Valdak Corp., 468 F.2d 330, 336 (5th Cir. 1972)). However, Konstand’s status as a pledgor of stock does not give him RICO standing for any viable claims relating to the three injuries he allegedly suffered. As we have just noted, the statute of limitations bars any claim with respect to the 1975 takeover of BCI. Therefore, whether Konstand’s status as a pledgor is sufficient to confer RICO standing is irrelevant to claims arising from that 1975 injury. At the time of Konstand’s second alleged injury, the mismanagement and alleged skimming of revenues from the hotel from 1975 until 1981, he was no longer a pledgor of stock. By early 1975, UCB had foreclosed on Konstand’s stock pledge, buying the stock at a public sale in early 1975. Therefore, Konstand was not a pledgor at the time that the alleged skimming of assets took place because his pledge already had been “called in.”4 Once UCB foreclosed on the shares that Konstand had pledged he was, at best, similarly situated with other shareholders. Because Konstand lost his pledgor status once UCB foreclosed on his BCI shares, the stock pledge also cannot confer RICO standing on Konstand’s claims related to the mismanagement of the hotel from 1975 until 1981. Therefore, his stock pledge cannot be the basis for any RICO standing. See Pelletier, 921 F.2d at 1500; Citibank, 828 F.2d at 693. That Konstand may have held additional stock that was not pledged (see Part IV, infra) 4 is irrelevant, because only stock actually pledged could create a stake sufficient to support RICO standing. Whether or not Konstand pledged all of his holdings in BCI, he was no longer a pledgor once UCB foreclosed on all of the shares that he had pledged. 14 Finally, Konstand contends that because he loaned BCI $105,000, he has RICO standing as a creditor of BCI. He asserts that his status as a creditor allows him to pursue his RICO claims with regard to both the alleged mismanagement of assets and skimming of profits from the hotel during the 1975-1981 period and the allegedly fraudulent sale of the hotel for less than its fair market value in 1981. In support of his position, Konstand refers us to the relatively lenient test for creditor RICO standing that the Second Circuit has adopted. That circuit has held that a creditor will have standing to pursue RICO claims whenever harm to that creditor is “reasonably foreseeable or anticipated as a natural consequence.” See GICC Capital Corp. v. Technology Finance Group, 30 F.3d 289, 292-93 (2d Cir. 1994), cert. denied, ___ U.S. ___, 116 S. Ct. 2547 (1996). However, the Second Circuit’s broad interpretation of RICO standing is inconsistent with the Supreme Court’s analysis in Holmes and with our analysis in Pelletier. As those decisions make clear, the test for RICO standing is whether the alleged injury was directly caused by the RICO violation, not whether such harm was reasonably foreseeable. See Holmes at 268, 112 S. Ct. at 1319; Pelletier, 921 F.2d at 1500. We do not mean to imply that a creditor can never have RICO standing, because it is possible that a pattern of racketeering could be directed specifically at a corporation’s creditors. A creditor will have RICO standing only when his injury passes the directness test laid out in Holmes and Pelletier, which will not be the case if the injury alleged was suffered only as a result of harm to the corporation. See Hamid v. Price Waterhouse, 51 F.3d 1411, 1420 (9th Cir. 1995); Manson v. Stacescu, 11 F.3d 1127, 1130 (2d Cir. 1993); see also 15 Sparling v. Hoffman Constr. Co., Inc., 864 F.2d 635, 640 (9th Cir. 1988) (holding that creditor lacks RICO standing unless he shows injury other than that shown by shareholders). Konstand claims that as a creditor, he has RICO standing to pursue the injuries that he suffered as a result of the alleged skimming of profits and the sale of the hotel at below its market value. We believe that Konstand’s status as a BCI creditor does not confer RICO standing on his individual claims with regard to the skimming of profits, because that alleged diversion of hotel revenues had too derivative an effect on Konstand as a creditor; the skimming was aimed primarily at the corporation, not at its creditors. The sale of the hotel allegedly at a price below its market value is a different matter. At the time that BGH sold the Gainesville Hilton, it was in bankruptcy seeking protection from its creditors, including Konstand. As a creditor, Konstand had a direct interest in seeing the hotel sold for as high a price as possible. See 11 U.S.C. § 1104(a) (allowing for appointment of independent trustee to prevent debtor from defrauding creditors). The sale of the hotel for a higher price would have directly benefitted major creditors such as Konstand, because they would have been able to recover a greater percentage of the debts owed to them. In contrast, the sale of the hotel for a higher price would have little impact on the shareholders and the corporation, since the additional funds from the sale would have been used to satisfy creditors instead of going to shareholders. Therefore, the sale of the hotel at a lower price affected creditors in a manner distinct from shareholders, and in a manner sufficiently direct to confer RICO standing on Konstand in his capacity as a creditor. See Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1100-01 (2d Cir. 1988) (relying in part 16 on defendants’ alleged fraudulent transfers to avoid bankruptcy creditors to support RICO standing).