Cullom v. Hibernia Nat. Bank

• Decision Date: 28 October 1988
• Docket Number: No. 87-3675,87-3675
• Citation: 859 F.2d 1211
• Parties: , RICO Bus.Disp.Guide 7082, 3 Indiv.Empl.Rts.Cas. 1679 Robert L. Randolph CULLOM, Plaintiff-Appellant, v. HIBERNIA NATIONAL BANK, New Orleans, Louisiana, Hibernia National Bank in Lafayette (Formerly Southwest National Bank of Lafayette), Defendants- Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1211

859 F.2d 1211

57 USLW 2328, RICO Bus.Disp.Guide 7082,

3 Indiv.Empl.Rts.Cas. 1679

Robert L. Randolph CULLOM, Plaintiff-Appellant, v. HIBERNIA NATIONAL BANK, New Orleans, Louisiana, Hibernia National Bank in Lafayette (Formerly Southwest National Bank of Lafayette), Defendants- Appellees.

No. 87-3675.

United States Court of Appeals Fifth Circuit.

Oct. 28, 1988.

Peter J. Butler, Aubrey B. Hirsch, Jr., New Orleans, La., for plaintiff-appellant.

William R. Forrester, Jr., New Orleans, La., Scott B. Schreiber, Joseph G. Poluka, Washington, D.C., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before POLITZ, KING and SMITH, Circuit Judges.

KING, Circuit Judge:

This case involves the civil remedies provision of the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO"), 18 U.S.C. Sec. 1964 (1984), and the standing requirement that Sec. 1964(c) places upon a plaintiff. Essentially, Sec. 1964(c) requires that a plaintiff's injury must be "by reason of" a violation of Sec. 1962 of RICO. We hold that an employee discharged for refusing to participate in an illegal activity under RICO lacks standing to sue under Sec. 1964(c). The employee's injury was not "by reason of" or did not "flow from" the commission of the predicate acts on which the alleged RICO violation was based. Accordingly, we affirm the district court's dismissal of the case.

I.

Since all facts alleged by the appellant are considered true on a review of a dismissal on a rule 12(b)(6) motion, Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); National Enters. v. Mellon Fin. Servs. Corp., 847 F.2d 251, 252 (5th Cir.1988), we set forth the facts alleged by the appellant. In the summer of 1984, Robert Cullom ("Cullom"), the plaintiff-appellant, became associated with Southwest National Bank of Lafayette ("SNB") and was elected as its president and chief executive officer as well as a member of SNB's board of directors. During this time and at all times relevant to this appeal, SNB was a wholly owned subsidiary of Southwest Bancshares, Inc. ("Southwest Bancshares"). Beginning in the early summer of 1985, Southwest Bancshares, SNB, and Hibernia Corporation, the parent company of Hibernia National Bank ("Hibernia") and of Guaranty Bank & Trust Company of Alexandria ("Guaranty Bank & Trust"), engaged in merger discussions; the object of these discussions was the acquisition by Hibernia Corporation of all of SNB's outstanding stock. ¹

Cullom alleges that in March of 1986, SNB, Hibernia, Hibernia Corporation, and Guaranty Bank & Trust created a "fraudulent scheme" which the parties intended to conduct over various reporting periods ² for an indefinite period of time. The scheme consisted of Hibernia's sale and attempt to sell to other banks substantial short term participations in its loan portfolio. ³ Hibernia would sell these loan participations shortly before the end of a reporting period and repurchase them shortly after the end of the same reporting period. Thus, Hibernia reduced its loan portfolio while increasing its cash position, with the net result that Hibernia favorably distorted both its loan loss reserve size and its liquidity position. As a result of this scheme, the financial condition of Hibernia, Hibernia Corporation, ⁴ and the banks which purchased the short term loan participations would be materially distorted. Further, the Comptroller of the Currency ("Comptroller") specifically prohibits such practice. ⁵ Cullom was aware of the fraudulent effects that such a practice has on financial statements, and he also knew that the Comptroller prohibited such activity.

In March of 1986, Hibernia informed Cullom that it intended to sell one hundred fifteen million dollars in temporary loan participations. These loan participations were to be sold immediately prior to March 31, 1986, and repurchased immediately thereafter. Hibernia requested SNB to purchase ten million dollars of the one hundred fifteen million dollars of temporary loan participations. Because Cullom was suspicious of such a transaction, he contacted SNB's legal counsel and asked for advice concerning Hibernia's request. SNB's legal counsel refused to render an opinion on the matter. Thereafter, Hibernia mailed a letter to one of SNB's officers which confirmed Hibernia's earlier intention to delete several million dollars from its loan portfolio with SNB's participation. Concerned that Hibernia was asking SNB and Cullom to become involved in illegal activity, Cullom sought the advice of independent legal counsel. The independent legal counsel advised Cullom to do nothing concerning the proposed transaction without first obtaining an opinion from SNB's attorney.

Cullom ultimately refused to participate in the scheme, but on March 26, 1986, the SNB loan committee voted, over Cullom's objection, to purchase the temporary loan participations from Hibernia. Several hours later, however, SNB reversed its decision to purchase the temporary loan participations. Approximately one or two days after the loan committee meeting, Cullom met with Joseph Onebane ("Onebane"), a member of SNB's legal counsel and a member of SNB's board of directors. Onebane advised Cullom "not to make waves" with Hibernia and to throw away the circulars and written communications from Hibernia. Thereafter, around April 10, 1986, Cullom was re-elected to serve as SNB's president and chief executive officer for approximately one year and to serve another term on SNB's board of directors. On April 30, 1986, however, SNB informed Cullom that since Cullom's philosophy in operating a bank was different than Hibernia's philosophy, Cullom must resign or be fired. When Cullom asked for the real reasons behind his requested resignation, he was told that he was being asked to resign because he refused to participate and cooperate in the purchase of the loan participations from Hibernia and because he sought the advice of independent legal counsel. Cullom's request for a short period of time to make a decision was refused, and accordingly, he immediately submitted his resignation.

Cullom filed suit against Hibernia and SNB in April of 1987, alleging that Hibernia and SNB engaged in or conspired to engage in several counts of mail and securities fraud. Cullom further alleged that he was constructively discharged because he refused to participate in illegal activity, that he suffered damages due to his constructive discharge, and that because of his constructive discharge and his damages, he had standing to sue under RICO and should be afforded treble damages. On June 9, 1987, Hibernia and SNB filed a motion to dismiss, pursuant to Rule 12(b)(6), for a lack of standing and for a failure to state a claim upon which relief can be granted. Hibernia and SNB argued that since Cullom was not injured "by reason of" the predicate acts--the mail and securities fraud--Cullom did not have a RICO claim. The district court agreed; on August 5, 1987, the district court issued an Order and Reasons in support of its decision, Cullom v. Hibernia Nat'l Bank, 666 F.Supp. 88 (E.D.La.1987), and it granted Hibernia's and SNB's motion to dismiss. On August 7, 1987, the district court issued a judgment in favor of Hibernia and SNB and dismissed Cullom's suit. Thereafter, Cullom filed timely notice of appeal.

On appeal, Cullom argues that he has standing to sue under RICO for his damages because, unlike the cases in which an employee reports the RICO violation and is discharged, Cullom actually refused to participate in a scheme which violates RICO. Thus, the sole issue on appeal is whether a person may collect treble damages under the civil damage section of RICO, 18 U.S.C. Sec. 1964(c), when he refuses to participate in an activity which is violative of RICO and is constructively discharged for such a refusal. We hold that such a person does not have standing to sue under RICO for his discharge.

II.

As previously mentioned, we consider all facts alleged by Cullom to be true. Cruz, 405 U.S. at 322, 92 S.Ct. at 1081; National Enters., 847 F.2d at 252. Further, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957) (footnote omitted).

As part of RICO's far-reaching civil enforcement scheme, Congress included Sec. 1964(c) which allows private suits and compensates injuries by awarding treble damages and attorney's fees. Sedima v. Imrex Co., 473 U.S. 479, 483, 105 S.Ct. 3275, 3278, 87 L.Ed.2d 346 (1985). Section 1964(c) states that "[a]ny person injured in his business or property by reason of a violation of section 1962 ⁶ of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." 18 U.S.C. Sec. 1964(c). The language "by reason of" in Sec. 1964(c) imposes a proximate causation requirement on plaintiffs. Haroco, Inc. v. American Nat'l Bank & Trust Co., 747 F.2d 384, 398 (7th Cir.1984), aff'd, 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985); Sperber v. Boesky, 849 F.2d 60, 63 (2d Cir.1988). In interpreting this statutory causation requirement, we begin with the statutory language and the legislative history. As the Second Circuit in Sperber stated, "the language is general and there is little legislative history." Sperber, 849 F.2d at 63. In Sedima, however, the Supreme Court set out certain guidelines for applying and interpreting Sec. 1964(c), stating that Sec. 1964(c) was to be construed liberally. ⁷ Sedima 473 U.S. at 492, 498, 105 S.Ct. at 3283, 3286. On the other hand, the Supreme Court placed a limit on the collection of private RICO damages when it interpreted...