954 F.2d 1087 (5th Cir. 1992), 90-3865, Whalen v. Carter

Docket Nº:90-3865.
Citation:954 F.2d 1087
Party Name:22 Fed.R.Serv.3d 561, RICO Bus.Disp.Guide 7954 Billy R. WHALEN, Plaintiff-Appellant, v. Prentiss H. CARTER, Jr., et al., Defendants-Appellees. Claude SHARKEY, Plaintiff-Appellant, v. The BANK OF GREENSBURG, et al., Defendants-Appellees. John FUSSELL, Plaintiff-Appellant, v. The BANK OF GREENSBURG, et al., Defendants-Appellees.
Case Date:March 05, 1992
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 1087

954 F.2d 1087 (5th Cir. 1992)

22 Fed.R.Serv.3d 561,

RICO Bus.Disp.Guide 7954

Billy R. WHALEN, Plaintiff-Appellant,

v.

Prentiss H. CARTER, Jr., et al., Defendants-Appellees.

Claude SHARKEY, Plaintiff-Appellant,

v.

The BANK OF GREENSBURG, et al., Defendants-Appellees.

John FUSSELL, Plaintiff-Appellant,

v.

The BANK OF GREENSBURG, et al., Defendants-Appellees.

No. 90-3865.

United States Court of Appeals, Fifth Circuit

March 5, 1992

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Jonathan R. Schmidt, Hammond, La., for Billy R. Whalen and Claude Charkey.

G. Daniel Evans, Birmingham, Ala., Peter F. Burns, Mobile, Ala., for Billy R. Whalen.

Rykert O. Toledano, Jr., Covington, La., for John Fussell.

Randy P. Zinna, Reynolds & Zinna, Baton Rouge, La., for P. Carter and W. Carter.

A.S. Easterly, III, Easterly & Pittman, Denham Springs, La., for R. Carter and B. Koger.

William C. Kaufman, III, Seale, Smith, Zuber & Barnette, Baton Rouge, La., for W. Hugh Sibley.

Frederick R. Tulley, Tom F. Phillips, Taylor, Porter, Brooks & Phillips, Baton Rouge, La., for Bank of Greenburg.

Holly C. Rolfes, New Orleans, La., for Meyers.

Appeals from the United States District Court for the Middle District of Louisiana.

Before POLITZ, Chief Judge, KING and JOHNSON, Circuit Judges.

JOHNSON, Circuit Judge:

The plaintiffs in these consolidated cases brought assorted federal and state law causes of action against multiple defendants. Essentially, the plaintiffs claimed that the defendants conspired to defraud them. After two hearings, the district court granted summary judgment against the plaintiffs and dismissed their claims. This Court affirms in part, reverses in part and remands for further proceedings.

I. FACTS AND PROCEDURAL HISTORY

Plaintiffs Billy R. Whalen, Claude Sharkey and John Fussell filed three separate civil lawsuits against the defendants under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968 (1988). The federal district court consolidated these cases, each of which arose out of a common series of allegedly fraudulent transactions between The Bank of Greensburg ("the Bank"), Carter Mobile Homes, Inc. ("CMH"), a Louisiana corporation, and Prentiss H. Carter, Jr. and Associates ("PHC & Associates"), a real estate partnership in commendam. At the time of the lawsuits, the plaintiffs were shareholders in CMH and owned debentures that CMH had issued. Moreover, the plaintiffs were partners in PHC & Associates. Besides the entities involved in the fraudulent transactions, the plaintiffs also sued the following individuals: Henry Ben Myers, president of The Bank of Greensburg; Prentiss H. Carter, Jr., CMH president and limited partner in PHC & Associates; William F. Carter, CMH secretary and limited partner in PHC & Associates; Hugh Sibley, the defendants' attorney; Betty Joe Carter Koger; and Rebecca Carter.

In their complaints, the plaintiffs alleged that Prentiss and William Carter mortgaged assets of the partnership, PHC & Associates, to secure a loan from the Bank to CMH. They claim that Prentiss and William Carter, Henry Myers and Hugh Sibley conspired to use a portion of the loan proceeds to retire debentures held by Carter family members--Betty Koger and Rebecca Carter--in preference over the plaintiffs, who likewise held CMH debentures. Allegedly, the conspirators completed these preferential transfers shortly before CMH went into bankruptcy. As a

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result of these preferential transfers, the plaintiffs complain that they have suffered a decrease in the value of their investments. They seek treble damages under RICO for the diminution in the value of their equity interest in PHC & Associates and the loss in value of their CMH debentures and stock. In addition, plaintiff Whalen individually seeks damages from the defendants under a series of federal securities statutes and Louisiana tort theories.

On July 21, 1989, the Bank filed a Rule 12(b)(6) motion alleging that the plaintiffs did not have the requisite standing to bring a RICO claim. At the hearing on this motion, the judge announced that, in his opinion, if the plaintiffs did not have standing to bring a RICO claim against the Bank, then the plaintiffs also did not have standing to bring a RICO claim against the other defendants. Subsequently, the remaining defendants adopted the Rule 12(b)(6) motion pending before the district court. The court stayed all discovery until it could rule on this motion.

Shortly thereafter, on March 15, 1990, the district court ruled that the plaintiffs as shareholders and creditors of CMH lacked standing to assert a RICO claim against the defendants. The court also ruled that the plaintiffs as limited partners in PHC & Associates lacked standing to assert a RICO claim against any of the defendants who were not partners in PHC & Associates. Thus, under this ruling, the plaintiffs could assert a RICO claim against Prentiss and William Carter--each of whom were partners in PHC & Associates--but could not assert a RICO claim against any other defendant. Interestingly, while the district court permitted the plaintiffs to proceed against Prentiss and William Carter, the court refused to permit the plaintiffs to reopen discovery.

Because the court's March 15 ruling did not address plaintiff Whalen's federal securities and state tort claims, the court scheduled a status conference to determine whether these claims could proceed to trial. At the conference, the court ordered Whalen to file a statement describing the facts of each claim with greater specificity. Whalen filed this statement in late April 1990. Defendant Hugh Sibley then filed a motion to dismiss the non-RICO claims asserted against him. In June, at a hearing on the motion to dismiss, the district court ordered that Sibley convert his motion to dismiss into a motion for summary judgment and that the other defendants file motions for summary judgment.

Two months later, the court granted summary judgment in favor of the defendants, dismissing Whalen's federal securities claims with prejudice and his state law claims without prejudice. As to the federal claims, the court reasoned that Whalen had failed to allege facts sufficient to raise a claim of securities fraud; as to the state claims, the court reasoned that it lacked subject matter jurisdiction to adjudicate the claims. The court placed the plaintiffs' remaining RICO claims against Prentiss and William Carter on its administrative docket, and by later agreement of the parties, these claims were closed. On October 31, 1990, the district court entered a final judgment.

II. DISCUSSION

In this appeal, we must address four issues: (1) whether the plaintiffs had standing to sue the defendants under RICO; (2) whether the district court could exercise subject matter jurisdiction over Whalen's state law claims; (3) whether plaintiff Whalen alleged facts sufficient to raise a federal securities fraud claim; and (4) whether the district court correctly denied the plaintiffs' requests to reopen discovery.

  1. Standing to Sue Under Civil RICO

    The civil RICO statute itself does not impose much of a standing requirement upon plaintiffs in RICO actions: it merely provides that RICO plaintiffs must have been injured "by reason of" a predicate act or acts which constitute a violation of RICO section 1962. 18 U.S.C. § 1964(c). See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). This RICO standing provision seems to require, as a condition

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    to a civil RICO action, that there be some nexus between the predicate acts and the subsequent injury. Interpreting this provision, the Fifth Circuit has concluded that the requisite nexus between predicate acts and subsequent injury is a causal relation. Under this interpretation of the RICO statute, a plaintiff has statutory standing to bring a claim as long as the defendants' predicate acts constitute both a factual and proximate cause of the plaintiff's alleged injury. See Old Time Enterprises, Inc. v. International Coffee Corp., 862 F.2d 1213, 1218 (5th Cir.1989); Zervas v. Faulkner, 861 F.2d 823, 834 (5th Cir.1988). 1

    Nonetheless, while causation is the crux of the statutory standing requirement, the RICO standing analysis does not end with a simple finding that there is a causal relation between predicate acts and the subsequent injury. A plaintiff in a RICO action must also demonstrate that he meets all applicable standing requirements imposed in other pertinent federal and state laws. Ocean Energy II, Inc. v. Alexander & Alexander, Inc., 868 F.2d 740, 744 (5th Cir.1989). Even though these other standing requirements may have no relation to RICO or its regulatory scheme, they must be satisfied in addition to the statutory standing requirements. Id. Therefore, in determining whether a plaintiff has standing to assert RICO claims, the district court first must determine whether any non-RICO standing requirements apply and have been satisfied. Then the court must determine whether the plaintiff has demonstrated that he has suffered an injury "by reason of" predicate acts which constitute a violation of RICO section 1962. Id. at 746.

    It is unclear in the instant case whether the plaintiffs themselves were injured "by reason of" predicate acts that constitute a RICO violation. The district court never reached the second part of the RICO standing test, however, because it concluded that the plaintiffs failed to satisfy applicable non-RICO standing requirements. We will analyze the applicability of these non-RICO standing requirements in each of the plaintiffs' legal capacities: as shareholders in a corporation, as creditors of a...

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