Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A.

• Decision Date: 20 July 1994
• Docket Number: D,No. 949,949
• Parties: RICO Bus.Disp.Guide 8610, 40 Fed. R. Evid. Serv. 1431 RIVERWOODS CHAPPAQUA CORP. and Harvey Shapiro, Plaintiffs-Appellants, v. MARINE MIDLAND BANK, N.A., Defendant-Appellee. ocket 93-7732.
• Court: U.S. Court of Appeals — Second Circuit

Page 339

30 F.3d 339

RICO Bus.Disp.Guide 8610, 40 Fed. R. Evid. Serv. 1431

RIVERWOODS CHAPPAQUA CORP. and Harvey Shapiro, Plaintiffs-Appellants, v. MARINE MIDLAND BANK, N.A., Defendant-Appellee.

No. 949, Docket 93-7732.

United States Court of Appeals, Second Circuit.

Argued Feb. 9, 1994.

Decided July 20, 1994.

Brian Koukoutchos, Cambridge, MA (Matthew S. Dontzin, New York City, of counsel), for plaintiffs-appellants.

James M. Altman, New York City (Suzanne M. Berger and Cheryl R. Oler, Robinson Silverman Pearce Aronsohn & Berman, of counsel), for defendant-appellee.

Before: TIMBERS, MINER and McLAUGHLIN, Circuit Judges.

MINER, Circuit Judge:

Plaintiffs-appellants Riverwoods Chappaqua Corporation ("RCC") and Harvey Shapiro appeal from a judgment, entered on June 23, 1993 in the United States District Court for the Southern District of New York (Brieant, J.) after a jury trial, dismissing their amended complaint in an action to recover damages pursuant to the civil enforcement provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968. The factual basis for the complaint was appellants' allegation that, through acts of extortion and mail fraud, defendant-appellee Marine Midland Bank coerced appellants to "restructure" certain loan agreements made between RCC and Westchester Federal Savings Bank ("WFSB"). Marine Midland inherited the agreements when it acquired WFSB in 1986.

In the amended complaint, several alternative theories were offered as to how Marine Midland violated the RICO statute. In Count I of the amended complaint, it was alleged that, through a pattern of racketeering activity, Marine Midland and two of its loan officers, Augustus Costaldo and Thomas Brennan, participated in the affairs of an association-in-fact enterprise known as the "Restructuring Group," in violation of 18 U.S.C. Sec. 1962(c). In Count II, it was alleged that RCC was an enterprise within the meaning of the RICO statute, 18 U.S.C. Sec. 1961(4), and that through a pattern of racketeering activity Marine Midland, Costaldo and Brennan acquired an interest in or control of RCC, in violation of 18 U.S.C. Sec. 1962(b). In Count III, it again was alleged that RCC was the enterprise, and in this count Marine Midland and its loan officers were said to have conducted or participated in the conduct of RCC through a pattern of racketeering activity, in violation of 18 U.S.C. Sec. 1962(c). In Count IV, it was alleged that Marine Midland, Costaldo and Brennan conspired to violate RICO, in violation of 18 U.S.C. Sec. 1962(d). The district court directed a verdict in favor of Marine Midland on Counts I and IV, and the jury returned a verdict in favor of Marine Midland on Counts II and III. On appeal, appellants contend that the district court erred by directing a verdict on Count I. On Counts I, II and III, they challenge the district court's decision not to admit the testimony of other WFSB borrowers whose loans were restructured by Marine Midland. As to Counts II and III, they assign as error certain jury instructions given by the district court. Appellants do not challenge the dismissal of Count IV. For the following reasons, we affirm.

BACKGROUND

In June of 1983, RCC's predecessor and Shapiro, a real estate developer, purchased property in New Castle, New York known as Riverwoods for the purpose of developing residential condominiums. In November of 1985, WFSB made a loan commitment to Shapiro and RCC's predecessor for the development of Riverwoods. WFSB was to provide $4.5 million of initial financing, additional construction loans to underwrite the In September of 1986, Marine Midland acquired WFSB and inherited the agreements with RCC for the Riverwoods project. At that time, WFSB already had advanced approximately half of the $4.5 million of initial financing, and Marine Midland became obligated to advance the balance and provide up to $9-10 million more for the completion of the project's first phase. In November, Shapiro had a "get-acquainted" meeting with employees of Marine Midland, including vice president Costaldo. According to appellants, the Marine Midland officers made it clear that they intended to dishonor the existing agreements, and their conduct indicated that they intended to coerce Shapiro and RCC to abandon the WFSB agreement and accept a new agreement with terms more advantageous to Marine Midland.

completion of the first phase of construction and financing for additional phases of construction through a cash collateral account. RCC's predecessor was permitted to obtain unlimited secondary financing and was to receive approximately 15% of the sale proceeds of each condominium unit sold. WFSB's commitment fees were not to exceed $300,000 and were to be paid over the life of the loan. According to Shapiro, the loans would not be due for five years.

Appellants allege that, in the months following the November meeting, Marine Midland withheld disbursements due under the WFSB agreements in order to exact new obligations. During the period between December of 1986 and January of 1987, by threatening to withhold funds, Marine Midland purportedly "extorted" four short-term promissory notes from Shapiro, secured by the Riverwoods property, totalling over $2 million. According to appellants, Marine Midland used the notes to force them to enter into a new loan agreement. They contend that if they had not agreed to new terms, the notes would have come due or would have been called in and the project would have collapsed. Marine Midland denies that it intended to dishonor the WFSB loan, and points out that it made requisition payments to RCC for expenses incurred from November of 1990 through March of 1991, and that Costaldo obtained approval for an additional loan of $10.5 million for the first phase of the development.

Whatever their motivations may have been, the parties began negotiating a restructured loan agreement in December of 1986. A commitment letter was signed in February of 1987, and the new loan agreement closed in March. It was disputed at the trial whether RCC was better off with the restructured loan or the original WFSB loan. Appellants argue that the restructured loan was highly disadvantageous because it imposed a $17 million cap on the availability of construction funds, imposed unrealistic minimum sale prices for units, shortened the maturity date of the loan by a year, imposed a prohibition against secondary financing over $500,000, reduced RCC's percentage of the sale proceeds to 10% until a certain part of the loan was repaid and required higher commitment fees. Marine Midland counters that the restructured loan provided many advantages to RCC because it allowed RCC to make more overall profit, made more funds available at any one time, did away with the "risky" cash collateral mechanism and generally allowed RCC more flexibility. According to RCC, no reasonable borrower would have relinquished the WFSB loan for the restructured loan. However, Marine Midland presented two expert witnesses who testified that they would have preferred the restructured loan over the WFSB loan.

In July of 1987, Marine Midland obtained a $500,000 personal guaranty from Shapiro. Shapiro complains that this guaranty was further illustration of Marine Midland's coercive lending practices. In November of 1988 and February of 1989, the restructured loan again was modified to increase the total amount available to RCC, but, on each occasion, a personal guaranty matching the cap increase was exacted from Shapiro. In November of 1989, Marine Midland gave RCC notice that it was in default and, in March of 1990, Marine Midland commenced a foreclosure action in New York Supreme Court, Westchester County. While the appeal at bar was under consideration, the state court action was decided in favor of Marine Midland. Marine Midland Bank v. Riverwoods Appellants commenced the action giving rise to this appeal against Marine Midland and three Marine Midland vice presidents, Costaldo, Brennan and Robin M. Gallagher on October 22, 1991. Appellants later discontinued the action against the individual defendants, leaving Marine Midland as the sole defendant in the case.

Chappaqua Corp., No. 4716/90 (N.Y.Sup.Ct.Westchester Cty., May 25, 1994).

During the presentation of their case, appellants planned to call as witnesses three other developers who had borrowed from WFSB ("Other Borrowers"). Employing tactics similar to those it used against appellants, Marine Midland allegedly coerced these witnesses to restructure their loans. The use of these witnesses' testimony was discussed at a pre-trial motion in limine. At trial, the district court disallowed the testimony, reasoning that it was inadmissible on Count I, which included the allegation that Marine Midland participated in the affairs of the Restructuring Group, since appellants had abandoned that claim in their opening statement and that, as to the "main case" (Counts II and III), the testimony constituted similar act evidence and would be admitted only if Marine Midland "opened the door" by putting its knowledge or intent in issue.

After appellants rested, Marine Midland moved for a directed verdict on all four counts. The district court granted the motion as to Count I and Count IV. As stated above, the jury found for Marine Midland on the other counts, and judgment was entered dismissing the complaint. This appeal followed.

DISCUSSION

1. Directed Verdicts

Appellants first contend that the district court erred in directing a verdict on Count I in favor of Marine Midland. As noted previously, they do not contest the dismissal of Count IV. In dismissing Count I, the district court concluded that (1) appellants abandoned this claim in their opening argument by addressing only the Count II theory that the RICO enterprise was RCC; (2) the claim was inconsistent with the other claims for relief; and (3) the evidence was...