103 F.3d 1180 (4th Cir. 1997), 95-1897, Young v. F.D.I.C.

Docket Nº:95-1897.
Citation:103 F.3d 1180
Party Name:Robert H. YOUNG; EDX Holdings, Incorporated, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Hilton Head Bank & Trust Company, N.A.; First Pacific Corporation; Swiss-American Fidelity Insurance Company And Guarantee, Limited; Attilio Franciulli; John Roche; Tom Ruhf; George Strickland; Price Waterhouse, Chartered Ac
Case Date:January 10, 1997
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 1180

103 F.3d 1180 (4th Cir. 1997)

Robert H. YOUNG; EDX Holdings, Incorporated, Plaintiffs-Appellants,



Hilton Head Bank & Trust Company, N.A.; First Pacific

Corporation; Swiss-American Fidelity Insurance Company And

Guarantee, Limited; Attilio Franciulli; John Roche; Tom

Ruhf; George Strickland; Price Waterhouse, Chartered

Accountants, a Bahamian Partnership; Lee S. Piper; Herbert

C. Schulken, Jr.; Dennis J. Goginsky, and other possible

partners of Price Waterhouse LLP, such as are residents of

South Carolina, Defendants-Appellees,


Bruce Benn; Corporation House, Limited; Raymond Jones;

William Ruth; Alfred Martin; General Bennett; Tom Whelan;

Claude Surface; Con Fecher; Ed Hughes; Helen Cork;

William Eaxley; Ann Grosshuesch; Cathy McGill, other

possible officers and directors of Hilton Head Bank and

Trust Company, N.A., after July 1988, not yet ascertained;

Hilton Head Bank & Trust Company, N.A.; Tony Habib, Defendants.

No. 95-1897.

United States Court of Appeals, Fourth Circuit

January 10, 1997

Argued Sept. 25, 1996.

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ARGUED: George Hunter McMaster, Columbia, SC, for Appellants. Jerome Anthony Madden, Federal Deposit Insurance Corporation, Washington, DC; Andrew John Pincus, Mayer, Brown & Platt, Washington, DC; Thornwell Forrest Sowell, III, Sowell, Todd, Laffitte, Beard & Watson, L.L.C., Columbia, SC; Brett Alan Feinstein, Miami Beach, FL, for Appellees. ON BRIEF: Ann S. DuRoss, Assistant General Counsel, Colleen B. Bombardier, Senior Counsel, Maria Beatrice Valdez, Kathy R. Bess, Federal Deposit Insurance Corporation, Washington, DC; C. Allen Gibson, Jr., Catherine Pulley Ballard, Christine E.W. Edenfield, Buist, Moore, Smythe & McGee, P.A., Charleston, SC, for Appellee FDIC. G. Dana Sinkler, Elizabeth T. Thomas, Warren & Sinkler, L.L.P., Charleston, SC, for Appellees Ruhf and Strickland. J. Calhoun Watson, Suzanne C. Massey, Nelson, Mullins, Riley & Scarborough, L.L.P., Columbia, SC; Andrew Plunkett, Office of General Counsel, Price Waterhouse, L.L.P., New York City, for Appellees Price Waterhouse and Partners.

Before MURNAGHAN and HAMILTON, Circuit Judges, and MERHIGE, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge HAMILTON and Senior Judge MERHIGE joined.


MURNAGHAN, Circuit Judge:

Plaintiff-Appellant Robert Young attempted to raise $600 million to finance gas and oil investments. When the proposed financing failed, Young sued those involved in the financing arrangement. The district court dismissed the claims against some of the Appellees and granted summary judgment to the

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remaining Appellees. For the reasons stated below, we affirm.


We recount the facts and inferences in the light most favorable to Young. See Donmar Enters., Inc. v. Southern Nat'l Bank of N.C., 64 F.3d 944, 946 (4th Cir.1995). In 1986, Plaintiff-Appellant Robert Young 1 sought to acquire oil and gas reserves, and he approached ABN Bank of Canada (ABNB) to finance his venture. ABNB referred Young to Bruce Benn, a financial advisor at Corporation House, Limited (Corporation House). Benn advised Young that he could quickly raise purchase money for the oil and gas reserves through a "credit enhancement" transaction. Benn, for a fee, would arrange for First Pacific Corporation (FPC) to obtain letters of credit from international banks, and Young would then use the letters of credit as collateral to obtain a $600 million loan from ABNB. To provide security for the international banks in case Young defaulted, Young would purchase a surety bond from Swiss-American Fidelity Insurance Company and Guarantee, Limited (SAFIG). John Roche, SAFIG's general manager, would arrange the transaction for a fee. Thus, the letters of credit would secure ABNB's $600 million loan, and the surety bond would secure the international banks' letters of credit. The plan, therefore, allowed Young to shift the primary risk from himself to SAFIG.

To initiate the credit enhancement transaction, Young had to purchase a surety bond from SAFIG. SAFIG's surety bond provided $55 million worth of surety protection for a premium of $2.2 million. SAFIG required an initial deposit of $550,000 from Young to obtain the surety binder. Young did not want to pay cash for the transaction, so Young had his bank, Northpark National Bank (NPNB), issue a letter of credit for $550,000 in SAFIG's favor. On September 16, 1988, after NPNB issued the letter of credit to SAFIG, SAFIG issued a two-month surety binder in FPC's favor, which stated that it would only be effective if Young fully paid the $2.2 million premium.

The $550,000 deposit was supposed to be refundable until Young authorized the issuance of the surety bond. However, on or about September 20, 1988, without Young's consent or approval, SAFIG assigned the $550,000 NPNB letter of credit to FPC. Attilio Franciulli, owner and director of FPC and SAFIG, then unsuccessfully tried to cash the letter of credit at a Miami bank. After that incident, Young told Benn that he wanted nothing further to do with FPC, Franciulli, or Tony Habib, another owner of FPC. Unbeknownst to Young, however, Franciulli and Habib also owned SAFIG. Since Young was unaware of their relationship to SAFIG, he proceeded with the credit enhancement transaction with SAFIG.

For reasons unexplained in the record, SAFIG then refused to accept the NPNB letter of credit and insisted that Young pay the $550,000 deposit in cash. Young borrowed the $550,000 from NPNB. Benn assured Young that his $550,000 loan would be secured by a SAFIG letter of credit, so that if Young defaulted on the loan, NPNB could proceed against SAFIG. Young borrowed the $550,000 from NPNB, and on September 22, 1988, SAFIG issued a letter of credit for $550,000 to NPNB.

According to Young, he agreed to borrow the $550,000 from NPNB only because the SAFIG letter of credit secured the loan. Benn and Young believed that SAFIG's letter of credit provided adequate security because SAFIG had produced an audited financial statement from Price Waterhouse-Bahamas (PW-Bahamas) that stated that SAFIG had $12 million on deposit "with a U.S. bank based in South Carolina." Benn believed that Hilton Head Bank & Trust, N.A. (HHB&T) was the South Carolina bank referred to in the financial statement because Mark Feaster, an HHB&T vice president, allegedly indicated to Benn that SAFIG had $12 million on deposit with HHB&T

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under a Trust Deposit Agreement. The Trust Deposit Agreement provided that SAFIG would deposit $12 million at HHB&T and that the funds would "not be withdrawn, pledged or otherwise encumbered up to the dollar equivalent of the insurance guarantees confirmed by the Bank." Young contends that Feaster executed the Trust Deposit Agreement, but both Feaster and HHB&T deny it.

PW-Bahamas based the financial statement on a Standard Bank Confirmation, purportedly signed by Feaster, which verified that SAFIG had $12 million on deposit with HHB&T. However, HHB&T's official records do not contain either the Trust Deposit Agreement or the Standard Bank Confirmation. Furthermore, it is undisputed that SAFIG never deposited $12 million at HHB&T.

HHB&T was chosen as escrow agent to facilitate the transfer of the $550,000 between NPNB and SAFIG. Accordingly, NPNB and HHB&T executed an escrow agreement on September 23, 1988. Pursuant to the escrow agreement, NPNB wired Young's $550,000 loan proceeds to HHB&T. On or about September 30, 1988, HHB&T, in accordance with the terms of the escrow agreement, forwarded the $550,000 to Credit Suisse for deposit in SAFIG'S Credit Suisse account. There is no dispute that HHB&T complied with the terms of the escrow agreement.

Young, however, contends that SAFIG orally agreed that the loan proceeds would remain on deposit at HHB&T until SAFIG issued the surety bond. The escrow agreement does not contain or reference the oral agreement, nor does any other document memorialize the oral agreement.

Young then defaulted on the NPNB loan. The letter of credit that SAFIG provided to NPNB stated that it was "payable against presentation to [HHB&T] ... or to Credit Suisse, Bahamas." Young claims that HHB&T also confirmed the SAFIG letter of credit. Young relies on two letters from Feaster, dated January 9 and January 20, 1989, to support his contention. The January 9 letter, on HHB&T letterhead, states: "We hereby acknowledge receipt and confirmation of the attached documentation." However, no documents are attached to the letter. The January 20 letter, also on HHB&T letterhead, confirms the SAFIG letter of credit, but is unsigned. Young contends that the two letters establish that HHB&T agreed to confirm and guarantee the SAFIG letter of credit. HHB&T's official records, however, do not contain the SAFIG letter of credit or the two January 1989 letters.

After Young's default, NPNB presented the SAFIG letter of credit, which secured Young's $550,000 loan, to HHB&T for payment. HHB&T, however, refused to pay.

On June 2, 1989, Young filed suit in the United States District Court for the District of South Carolina against several defendants: 1) HHB&T; 2 2) SAFIG; 3) John Roche; 4) FPC; 5) Attilio Franciulli; 6) Tony Habib; 7) Corporation House; and 8) Bruce Benn. Young alleged violations of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.A. §§ 1961-1968 (West 1984 & Supp. 1996), a RICO conspiracy, 18 U.S.C.A. § 1962(d)(West Supp.1996), violations of the...

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