Fed. Sav. & Loan Ins. v. Shearson-American Exp.
| Citation | 658 F. Supp. 1331 |
| Decision Date | 15 April 1987 |
| Docket Number | Civ. No. 84-0758(RLA). |
| Parties | FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, Cross-Claimant, v. SHEARSON-AMERICAN EXPRESS, INC.; Shearson-American Express De Puerto Rico, Inc.; Miguel Serrano Arreche; Ponce M.A. Developers, Inc.; Juan Luis Boscio; Owen Beverage; North-American International, Inc., Cross-Defendants. Jaime N. DAVILA, Cross-Claimant, v. Miguel SERRANO-ARRECHE, Cross-Defendant. |
| Court | U.S. District Court — District of Puerto Rico |
COPYRIGHT MATERIAL OMITTED
Roberto Boneta, Trias Doval Muñoz Acevedo & Otero, San Juan, P.R., for FDIC.
Gilberto Mayo Aguayo, Mayo & Mayo, Santurce, P.R., for Davila.
Salvador Antonetti, Fiddler Gonzalez & Rodriguez, San Juan, P.R., for Shearson.
José L. Correa Cintrón, San Juan, P.R., for Serrano.
Before the Court is the motion to dismiss filed by cross-defendants Shearson Lehman Brothers, Inc. ("Shearson") and Shearson Lehman Brothers, Inc. (Puerto Rico) ("Shearson PR") on April 7, 1986, collectively identified as the "Shearson Companies" or "Shearson defendants".1 Shearson and Shearson PR seek the dismissal of the Amended Cross-claims filed by the Federal Savings & Loan Insurance Corporation ("FSLIC") against them. Given the history of this litigation and the complexity of the issues at hand, a brief procedural and factual background is in order.
These proceedings were commenced on March 23, 1984 by the Municipality of Ponce ("the Municipality"), a local subdivision of the Commonwealth of Puerto Rico, alleging various claims for relief under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and the federal securities laws. In essence, the complaint charged the defendants with defrauding the Municipality by inducing one of its instrumentalities, the Ponce Municipal Development Authority ("PMDA"), to enter into several financial transactions, "Repurchase Agreements", which PMDA had no authority to enter into and with converting some of the proceeds of these transactions that belonged to PMDA. In substance, these claims were premised primarily on alleged actions of defendant Miguel Serrano Arreche ("Serrano"), a former Vice President and broker of Shearson PR who has since been indicted and convicted in two separate criminal actions in this Court for defrauding the original defendant to this action, Home Federal Savings and Loan Association, of Ponce, Puerto Rico ("Home Federal").2
Subsequently, the Municipality's claims against all of the defendants were dismissed pursuant to settlement agreements reached between the plaintiff and the defendants. As a result, the remaining matters before the Court were certain cross-claims and third-party claims. On March 26, 1985, the FSLIC made its first appearance in the case in a motion seeking to be substituted for Home Federal in the cross-claim filed by Home Federal on September 14, 1984 against the Shearson defendants, Serrano and Ponce M.A. Developers, Inc. The FSLIC's motion for substitution was granted by the Court on March 29, 1985. The main reason for this substitution was the demise of Home Federal.
On June 14, 1985, the Shearson defendants filed a motion requesting, inter alia, the dismissal of Home Federal's cross-claims for failure to plead fraud with the requisite particularity. On October 21, 1985, the Court dismissed Home Federal's fraud claims against Shearson and granted the FSLIC until December 10, 1985 to file any amended cross-claims against the Shearson defendants which complied with the particularity requirement for fraud claims set out in Rule 9(b) of the Fed.R. Civ.P. Furthermore, the Court instructed FSLIC to indicate in any such amended cross-claims whether the Shearson defendants alleged liability was predicated on their direct actions or on some indirect basis, such as respondeat superior.
On December 10, 1985 (Docket No. 128) the FSLIC filed with the Court its Amended Cross-claims against the Shearson Companies and other defendants. FSLIC alleges that this Court has original subject matter jurisdiction over its Amended Cross-claims pursuant to 12 U.S.C. § 1730(k)(1)(B) () and 28 U.S.C. § 1331 (federal question jurisdiction) on the basis of 18 U.S.C. § 1961 et seq. (RICO), 15 U.S.C. § 77v (the Securities Act of 1933, hereinafter "the 1933 Act"), 15 U.S.C. § 78aa (the Securities Exchange Act of 1934, hereinafter "the 1934 Act") and 15 U.S.C. § 80b-14 (the Investment Advisors Act of 1940, hereinafter "the 1940 Act"). FSLIC claims that this Court additionally has ancillary jurisdiction of any state law claims it asserts against the various defendants.
FSLIC's Amended Cross-claims assert that management for Home Federal in 1981 approached Shearson PR seeking financial advice and assistance to rehabilitate Home Federal's weak position and to avoid its demise as a separate institution.3 As a result of these efforts, Home Federal's representatives, commencing in 1981, had various meetings with Serrano at Shearson PR's offices. Throughout these discussions, Serrano acted as a Senior Vice President of Shearson PR and as a registered securities industry professional of Shearson and Shearson PR.
According to the pleadings, in order to financially assist Home Federal, Shearson PR and Serrano obtained from Home Federal its financial statements and received other confidential information about the institution. Shearson PR developed a plan to financially rehabilitate Home Federal. This plan, as proposed or developed, included Home Federal's participation in a Shearson sponsored "Loan-to-Lenders Program", the recapitalization of Home Federal through "Repurchase Agreements", the deposit of Shearson funds in Home Federal, and the placement of brokered funds in Home Federal for their investment by Home Federal in securities and loans. In pursuit of Shearson PR's rehabilitation plan for Home Federal, Serrano and Home Federal's President, Jaime Dávila ("Dávila"), traveled from Puerto Rico to New York City on several occasions for meetings with other Shearson officials and with officers of the Bank Board.
It is further asserted that the first series of alleged fraudulent activities on the part of the Shearson defendants occurred in the Spring of 1982. These activities are referred in the complaint as the "1982 Repo.". Sometime prior to May of 1982, Serrano devised a scheme or artifice to defraud Home Federal to be accomplished through the 1982 Repo. In essence, Home Federal was induced to enter into a repurchase agreement with cross-defendant Ponce M.A. Developers, Inc. ("PDI") whereby Home Federal sold $3.1 million in Title I Federal Housing Administration ("FHA") loans, which it held, but Home Federal never received any consideration for this sale.
It is claimed that PDI was no more than a shell corporation created by Serrano and Shearson PR to serve as a conduit of "936 funds"4 to Home Federal. As alleged, Serrano and Shearson PR used Home Federal's $3.1 million in Title I FHA loans, through PDI, to enter into an upstream repurchase agreement with PMDA out of which PDI was to have received $3 million. PMDA, after obtaining the $3.1 million in Title I FHA loans from PDI, originally belonging to Home Federal, entered into a repurchase agreement with Shearson PR using the same $3.1 million as collateral, but actually receiving $3 million in proceeds from Shearson PR out of the transaction. In turn, Shearson PR obtained the $3 million that it turned over to PMDA from Citibank N.A. also through a similar repurchase agreement. All of these transactions occurred the same day.
FSLIC asserts that of the $3 million that PMDA received from Shearson PR, $2 million were used to purchase an off-shore certificate of deposit for the PMDA account at Shearson PR and the remaining $1 million was transferred to PDI's account at Shearson PR. Allegedly, Serrano, acting as an agent of Shearson PR, and PDI kept the $1 million in PDI's account, but not before attempting to pledge a part of these funds to the Federal Home Loan Bank of New York ("FHLBNY") in a fruitless effort to obtain FHLBNY guarantees of Home Federal's liabilities under the Shearson sponsored "Loan-to-Lenders Program".
The complaint then describes a series of predicate acts purporting to be violations of several federal statutes, including wire fraud, mail fraud and securities violations. Dates, places, participants and the modus operandi of these mail and wire frauds are all provided. The substance of the frauds pertaining to the sale of securities are also provided together with the alleged fraudulent representations and the alleged nondisclosures of material information relating to the transactions. The complaint alleges that these representations occurred at the times when Serrano proposed that Home Federal enter into the 1982 Repo.
The FSLIC's complaint then relates to a second allegedly fraudulent scheme. It is alleged that sometime prior to July of 1983 a scheme was devised whereby Serrano, acting as a Shearson PR officer, proposed that Home Federal receive $50 million in brokered funds with the understanding that Serrano and Shearson would then invest these funds to insure an adequate return on that capital. Of those funds, $28 million were actually placed at Home Federal in $100,000 FSLIC insured certificates of deposit at above prevailing market rates.
The FSLIC alleges that considering Home Federal's precarious financial condition, the failure to properly invest those funds would have brought about disastrous consequences, as it alleges in fact occurred. Home Federal, it is alleged, was a small, one-branch institution which lacked the financial sophistication to adequately invest these funds without expert...
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