First Nat. Bank of Louisville v. Lustig, Civ. A. No. 87-5488
| Decision Date | 07 December 1989 |
| Docket Number | 88-1682 and 89-202.,Civ. A. No. 87-5488 |
| Citation | 727 F. Supp. 276 |
| Parties | FIRST NATIONAL BANK OF LOUISVILLE v. Loretta LUSTIG, et al. |
| Court | U.S. District Court — Eastern District of Louisiana |
Stone, Pigman, Walther, Wittmann & Hutchinson, William E. Brown, T.A., Barry W. Ashe, New Orleans, La., Wolff Ardis, Patrick M. Ardis, R. Glenn Taylor, Daniel K. Evans, Elizabeth A. McNeill, Memphis, Tenn., Donald Ellis & Associates, Michael T. Byne, Atlanta, Ga., White & Morse, William S. Boyd, III, Gulfport, Miss., for plaintiff First Nat. Bank of Louisville.
Gordon, Arata, McCollam, Stuart & Duplantis, Nathalie M. Walker, Willard H. Henson, Glenda M. Barkate, New Orleans, La., for First Financial of La. Sav. & Loan Ass'n.
Eugene R. Preaus, Mark B. Meyers, Lawrence Ozenberger, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for Fidelity & Deposit Co. of Md.
Baldwin & Haspel, William E. Wright, Judy L. Burnthorn, Gary J. Giepert, Suzanne H. Terrell, New Orleans, La., for Pelican Homestead & Sav. Ass'n.
Archie B. Creech, Frank G. DeSalvo, New Orleans, La., for Robert F. Farmigoni.
Hulse, Nelson and Wanek, Joseph G. Gallagher, Jr., T.A., New Orleans, Luke Dove, Jackson, Miss., for Foil-Wyatt-McKewen and E. Bowden Wyatt.
Clarence F. Favret, Jr., Clarence F. Favret, III, New Orleans, La., for L. C. LeBlanc.
Simon, Peragine, Smith & Redrearn, H. Bruce Shreves, Christopher M. Guidroz, J. Thomas Hamrick, Jr., New Orleans, La., Ott & Purdy, Ltd., Robert C. Williamson, Jr., Jackson, Miss., for Benchmark Const. Corp. and David Marsh.
Oesteicher, Whalen & Hackett, Ralph S. Whalen, Jr., New Orleans, for Lee Larson Elmore, Odyssey One, Inc. and Odyssey Two, Inc.
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Robert B. Bieck, Jr., Thomas K. Potter, III, New Orleans, La., for A. C. Lewis, III, Alex Lewis and Succession of Patricia Ann Voorhies Lewis.
Deutsch, Kerrigan & Stiles, Matt J. Farley, T.A., Duris L. Holmes, New Orleans, La., for Aetna Cas. & Sur. Co. and Federal Ins. Co.
Vaughan, Messina & Hellman, Earl N. Vaughan, New Orleans, La., Thomas, Price, Alston, Jones & Davis, Barry S. Zirulnik, Dale F. Schwindaman, Jr., Charles R. Davis, Elizabeth L. DeCoux, Jackson, Miss., for John G. Gray and Dale S. Gray.
Daniel J. Gentz, Marietta, Ga., for Mini Storage Const. Co. and Transtor American Corp.
Richard Stacy, Scottsdale, Ariz., pro se.
Kevin L. DeWitt, Louisville, Ky., pro se.
Lee Larson Elmore, Jackson, Miss., pro se.
Loretta Lustig, Gretna, La., pro se.
Daniel J. Gentz, Marietta, Ga., pro se.
Leroy Roell, Jackson, Miss., pro se.
Christopher J. Hegarty, Novato, Cal., pro se.
Pelican Homestead & Savings Association, successor by merger of First Financial of Louisiana Savings and Loan Association (hereafter "First Financial"), has previously filed a motion under Fed.R.Civ.P. 12(b) to dismiss the RICO count in the complaint, Count XXXI. The motion raises a legal question not yet addressed by this circuit, viz., whether a corporate defendant may be held liable in a RICO civil suit under the doctrine of respondeat superior. We hold that it may not be and grant the motion, although our ruling does not rest on that basis alone.
Count XXXI of the complaint at ¶ 475-478 asserts against First Financial and others causes of action allegedly arising out of violations of all four substantive sections of RICO, 18 U.S.C. § 1962(a), (b), (c) and (d). These claims, as they relate to First Financial, concern four of eight purportedly fraudulent loans made by plaintiff FNBL in four states. (A fifth allegedly fraudulent loan involving First Financial, for a housing project to be built in Baton Rouge, caused no loss to FNBL.) More particularly, the complaint states: (1) that First Financial made a $480,000 loan to the Odyssey I Shopping Center project in Jackson, Mississippi; (2) that this loan was secured in part by an assignment of developer's fees purportedly due from FNBL to Leroy Roell and Larson Elmore, for the Odyssey II Shopping Center project, also in Jackson, Mississippi; (3) that, First Financial's erstwhile vice president Robert Farmigoni, without First Financial's knowledge or authorization, issued on March 19, 1985 a fraudulent permanent commitment letter for funding a mini warehouse project at Buckhead, Georgia; and (4) that First Financial, through Farmigoni, issued and breached a March 19, 1985 permanent loan commitment letter for a mini warehouse project on Lapalco Boulevard in Jefferson Parish.
According to the revised RICO case statement filed by plaintiff FNBL on July 21, 1988, First Financial's wrongdoing in these transactions assertedly consist in (1) vicarious liability, apparently under the doctrine of respondeat superior, for the acts of Farmigoni, and also (2) direct liability for the issuance of the commitment letter for permanent financing for the Lapalco mini warehouse project. See Revised RICO Case Statement, R.D. 47 (88-1682), at 11-12. Nevertheless, the RICO case statement only identifies two predicate acts in which First Financial was a direct participant: (1) a mailing by Kevin Dewitt, FNBL's former loan officer, of a letter on December 12, 1985 to Farmigoni at First Financial; this letter misrepresented (a) that FNBL had already committed to fund the Odyssey II project (b) that $400,000 of the $600,000 in developer's fees due from FNBL on Odyssey II would be assigned to First Financial if First Financial's $400,000 loan to Odyssey I was still outstanding when the Odyssey II loan was funded, RICO case statement at 24, predicate act number 5; and (2) the mailing of a First Financial commitment letter, through Farmigoni, to developer Loretta Lustig, for permanent funding for the Lapalco mini warehouse project, which letter First Financial subsequently refused to honor. Id. at 28, predicate act number 11. The only other predicate act that even breathes mention of First Financial is predicate act number 12, which alleges mail fraud on the part of Farmigoni expressly unbeknownst to First Financial. Id. at 28-29. Moreover, the aforementioned three predicate acts, viz., numbers 5, 11, and 12, are the only acts identified by the RICO case statement as involving Farmigoni himself as a direct participant.
The instant motion filed by First Financial under Rule 12(b)(6) seeks: (1) dismissal of the § 1962(b) and (c) claims for failure to allege First Financial's knowing perpetration of two predicate acts; (2) dismissal of the § 1962(a) claim for failure to allege predicate acts in which First Financial participated as a principal; (3) dismissal of the § 1962(d) claim for failure to allege First Financial's agreement with any co-conspirator to commit two or more predicate acts; and (4) alternatively, the dismissal of all RICO claims for failure to allege a RICO enterprise. We treat mover's attacks on the § 1962(a), (b), and (c) claims under one rubric, as they raise similar questions about vicarious liability under civil RICO. THE SECTION 1962(a), (b), AND (c) CLAIMS AND RESPONDEAT SUPERIOR:
Subsection (a) of 18 U.S.C. § 1962 provides in pertinent part:
It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, Title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
This section has been construed persuasively by the Seventh Circuit in Haroco v. American Nat'l. Bk. & Trust Co. of Chicago, 747 F.2d 384 (7th Cir.1984):
As we parse subsection (a), a "person" (such as a corporation-enterprise) acts unlawfully if it receives income derived directly or indirectly from a pattern of racketeering activity in which the person has participated as a principal within the meaning of 18 U.S.C. § 2 and if the person uses the income in the establishment or operation of an enterprise affecting commerce. Id. at 402 (emphasis added).
Thus, § 1962(a) requires a RICO plaintiff to plead and prove that the defendant is liable as a principal within the meaning of 18 U.S.C. § 2 for the underlying predicate acts. A corporation that is only the passive instrumentality of an employee's wrongdoing cannot be held liable as a principal.
The Fifth Circuit has recently elucidated the "principal" standard for mail fraud in a RICO context.
To establish that defendant violated the mail fraud statute as an aider and abetter plaintiff must have proved that defendant was associated with the mailing of the bogus invoices, participated in it as something that he wished to bring about, and sought by his actions to make it succeed.... To prove a defendant's association with the mailing of the false invoices, there must be evidence that defendant share in the criminal intent of the principals.... Proof of "mere negative acquiescence" in the fraud is insufficient ...; there must be evidence that defendant "committed an overt act designed to aid in the success of the venture." Armco Industrial Credit Corp. v. SLT Warehouse Co., 782 F.2d 475, 485 (5th Cir.1986) (citations omitted) ( RICO judgment against defendant predicated on aider and abetter status).
We are of course aware that Armco turned upon the insufficiency of evidence after trial; it nevertheless provides guidance at the pleading stage, as the RICO complaint must not depend upon mere conclusory allegations, but must allege, among other things, fraud (including mail and wire fraud) with specificity. Fed.R.Civ.P. 9(b); Davis v. A.G. Edward & Sons, Inc., 687 F.Supp. 266, 268 (W.D.La.1988); RICO standing order, May 24, 1988, R.D. 20 (88-1682) at 1 (...
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