Stoutt v. Banco Popular De Puerto Rico

• Decision Date: 10 February 2003
• Docket Number: No. 01-2275.,01-2275.
• Citation: 320 F.3d 26
• Parties: Palmer Paxton STOUTT; Rancal International, Inc.; Rancal Corp., Ltd., Plaintiffs, Appellants, v. BANCO POPULAR DE PUERTO RICO, Defendant, Appellee. Euro-Atlantic Securities; ABC Insurance Co.; XYZ Insurance Co., Defendants.
• Court: U.S. Court of Appeals — First Circuit

Page 26

320 F.3d 26

Palmer Paxton STOUTT; Rancal International, Inc.; Rancal Corp., Ltd., Plaintiffs, Appellants, v. BANCO POPULAR DE PUERTO RICO, Defendant, Appellee Euro-Atlantic Securities; ABC Insurance Co.; XYZ Insurance Co., Defendants.

No. 01-2275.

United States Court of Appeals, First Circuit.

Heard November 6, 2002.

Decided February 10, 2003.

Harry Anduze Montaño with whom Raul S. Mariani Franco was on brief for appellants.

Samuel W. Seymour with whom Jeffrey J. Chapman and Sullivan & Cromwell were on brief for the appellees.

Thomas C. Baxter, Jr., Shari D. Leventhal, Federal Reserve Bank of New York, James Virgil Mattingly, Jr., General Counsel, Board of Governors of the Federal Reserve System, Richard M. Ashton, Associate General Counsel, and Stephen H. Meyer on brief for the Board of Governors of the Federal Reserve System, Amicus Curiae.

Before BOUDIN, Chief Judge, LYNCH and HOWARD, Circuit Judges.

BOUDIN, Chief Judge.

In 1997, Palmer Stoutt, together with Rancal International and Rancal Corp., companies of which Stoutt is the president, sued Banco Popular de Puerto Rico ("Banco Popular" or the "Bank") for malicious prosecution, unlawful arrest and incarceration, and defamation. The district court granted summary judgment in favor of Banco Popular based on the safe harbor provision of the Annunzio-Wiley Anti-Money Laundering Act, 31 U.S.C. § 5318 (2000),¹ which gives immunity to reports of suspected illegal activity. This appeal followed.

We recount the facts in the light most favorable to the party opposing summary judgment (here, Stoutt). N. Am. Specialty Ins. Co. v. Lapalme, 258 F.3d 35, 36 (1st Cir.2001). Stoutt and one or more of his companies had a continuing business relationship with Banco Popular. In June 1995, Stoutt entered into negotiations with the Bank for a five-year loan in the amount of $1.5 million. Banco Popular approved the loan conditioned on the securing of adequate collateral in the form of United States Treasury bills.

In July 1995, Stoutt contacted Euro-Atlantic Securities, a registered securities broker-dealer based in Chicago, and entered into an arrangement whereby he would lease $10 million in Treasury bills from Euro-Atlantic for $300,000 a month. Through this lease, Stoutt was told that he could both collateralize the loan from Banco Popular and invest the surplus bills in a margin account which would generate sufficient income for him to cover the lease cost.

As part of the transaction, Euro-Atlantic Securities required Stoutt to make a good faith deposit with it equal to the first month's lease cost ($300,000). To satisfy this requirement, Stoutt sought a line of credit from Banco Popular. On July 21, 1995, Banco Popular granted Stoutt — in the words of the document itself — a "commercial line of credit in the amount of $300,000 for the discretionary use to conduct the company's business affairs." Stoutt contends that Banco Popular understood the underlying Treasury bill leasing arrangement with Euro-Atlantic.

On August 28, 1995, Stoutt attempted to draw on the line of credit to make the good faith deposit with Euro-Atlantic. José E. Guzmán, the Banco Popular manager in the Hato Rey branch with whom Stoutt was dealing, refused the request for reasons that are disputed. According to Stoutt, Guzmán said that if Stoutt deposited in his Banco Popular account a check drawn on his account in another bank, the Bank would pay on an "uncollected funds" basis, i.e., that it would allow withdrawal immediately without waiting for the deposited check to clear. See Black's Law Dictionary 1526 (7th ed.1999).

Stoutt told Guzmán that he controlled only one other checking account, which had just been established at the Citibank branch in Miami. Guzmán allegedly told Stoutt that if the Citibank check were returned unpaid to Banco Popular, Banco Popular could initially cover the overdraft by allowing an advance on the line of credit. That afternoon, Stoutt deposited into the Banco Popular account of an affiliated Rancal company a $300,000 check drawn on Rancal's Citibank account.

Stoutt apparently believed that sufficient profits from the investment of surplus Treasury bills leased from Euro-Atlantic would arrive in the Citibank account in time to cover the check. Yet when Banco Popular presented Stoutt's check to Citibank, the check was dishonored for insufficient funds and thereafter dishonored a second time. In the meantime, Stoutt had already transferred out $300,000 from his Banco Popular account (credited there based upon his Citibank check) to make his deposit with Euro-Atlantic Securities, so his Banco Popular account was now overdrawn by $300,000.

In late September 1995, Stoutt discovered that the Euro-Atlantic Securities transaction was apparently a scam directed against him and that he had lost his good faith deposit without securing the promised Treasury bills. In October, he contacted the Securities and Exchange Commission, the United States Attorney's office in Chicago, and the National Association of Securities Dealers. He also retained a lawyer to help him recover the $300,000.

The size of Stoutt's overdraft alerted officials at Banco Popular. Meetings were held in October 1995 between him and Banco Popular officials, and internally within Banco Popular. At one such meeting, some Banco Popular officials concluded that Stoutt was engaged in check kiting. Check kiting — knowingly writing a check against an account with insufficient funds — can amount to an offense under federal bank fraud law. 18 U.S.C. § 1344 (2000); United States v. Fontana, 948 F.2d 796, 799 (1st Cir.1991).

On November 13, 1995, Banco Popular filed a criminal referral form ("CRF") with the FBI. 12 C.F.R. § 208.20 (1995). The CRF, a predecessor of the suspicious activity report ("SAR") under current law, 12 C.F.R. § 208.62 (2002), was required to be filed in various situations. The language of the CRF, though opaque in parts, clearly applied if Banco Popular suspected that possible criminal activity had inflicted on it a potential loss of more than $5,000. See 12 C.F.R. § 208.20(c)(2), (3) (1995).² In this case, Banco Popular's CRF stated that the suspected violation appeared to be an isolated incident of check kiting.

The FBI, after discussions with Banco Popular employees, began a criminal investigation of Stoutt and he was ultimately arrested. A federal grand jury indicted him for bank fraud on December 6, 1995. In early 1996, the United States voluntarily dismissed the charges without prejudice for reasons that are unclear. Conceivably, the prosecutor on reflection thought this a marginal case in which a jury might deem Stoutt more negligent (and gullible) than consciously fraudulent.

On December 4, 1997, Stoutt and his two corporate co-plaintiffs sued Banco Popular in the federal court in Puerto Rico for a variety of local-law torts (already listed) flowing from Banco Popular's report to and subsequent contact with the FBI, as well as a Bivens claim under the Fourth Amendment for false arrest. See Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388, 395-96, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971). After discovery the district court in July 2001 granted the Bank's motion for summary judgment, holding that the Bank was entitled to absolute immunity under the safe harbor provision of 31 U.S.C. § 5318(g)(3). Stoutt v. Banco Popular de P.R., 158 F.Supp.2d 167, 175 (D.P.R.2001). On appeal, Stoutt argues on various grounds that the Bank was not entitled to immunity. Our review is de novo. United States v. Howard, 996 F.2d 1320, 1327-28 (1st Cir.1993).

At the time of the transactions and the lawsuit, the immunity provision read, in pertinent part, as follows:

Any financial institution that makes a disclosure of any possible violation of law or regulation or a disclosure pursuant to this subsection or any other authority, and any director, officer, employee, or agent of such institution, shall not be liable to any person under any law or regulation of the United States or any constitution, law, or regulation of any State or political subdivision thereof... for such disclosure ....

31 U.S.C. § 5318(g)(3).³

Stoutt makes two core arguments — along with several variations — to avoid the immunity statute (a further argument, pertaining only to the Bivens claim, is discussed below): first, that the Bank's disclosures in follow-up discussions with the FBI, after the filing of the CRF itself, fall outside the scope of the statute's protection; and second, that the statute, read in light of the regulations, implicitly requires that any suspicions conveyed to the authorities be held in good faith — a requirement that Stoutt says cannot be met here because the Bank knew that Stoutt was innocent of criminal conduct.

The statute offers two different categories of coverage: one is for "disclosure of any possible violation of law or regulation"; the other, for disclosure "pursuant to this subsection or any other authority." The latter clause presumably embraces reports required by 31 U.S.C. § 5318(g)(1) (which empowers the Secretary of the Treasury to compel the filing of reports) or other comparable authority. Perhaps it is arguable that disclosure under the "pursuant to" clause must be tied back to some legal mandate for disclosure and so encompasses the CRF but not the follow-up discussions.

But, as just noted, the statute also protects disclosures of "any possible violation of law or regulation," even if not tied to any legal mandate. The original CRF report was cast as the disclosure of a possible case of bank fraud, assuredly a possible violation of law. Conceivably, the answers to follow-up inquiries by the FBI directed to the details of the transaction could be distinguished from "disclosure" of a possible violation, since the details relate to an already disclosed violation. But this is not a very sensible reading given the purpose of the statute: if the...