Grant v. Union Bank, Civ. No. C85-882G.
| Decision Date | 28 February 1986 |
| Docket Number | Civ. No. C85-882G. |
| Citation | 629 F. Supp. 570 |
| Parties | Beulah M. GRANT, Plaintiff, v. UNION BANK, a Utah banking corporation, and Does 1 through 15, Defendants. |
| Court | U.S. District Court — District of Utah |
Richard F. Bojanowski, Salt Lake City, Utah, for plaintiff.
John Knapp Baird, Salt Lake City, Utah, for defendants.
This matter came on regularly for hearing on defendant Union Bank's Motion to Dismiss on December 11, 1985. Plaintiff was represented by Richard F. Bojanowski, and defendants were represented by John Knapp Baird. Memorandums of law were lodged with the Court, and counsel for the parties presented extensive oral argument to the Court, after which the matter was taken under advisement. The Court now being fully advised renders the following Memorandum Decision and Order.
Jurisdiction of this Court is invoked for alleged violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968. Plaintiff asserts two claims under RICO, and seven additional pendent claims under Utah contract and tort law. Since this matter is before the Court on Motion to Dismiss, allegations set forth in plaintiff's 23 page Complaint are taken as true for purposes of this decision.
Plaintiff was the president of Typewriter Co., Inc., which opened for business in Midvale, Utah in April 1979. It is alleged that plaintiff developed a relationship with the bank for purposes of financing certain aspects of her business, and that the bank became her financial adviser in all aspects of her business. She claims to have relied almost exclusively on the expertise of bank representatives concerning money matters and expansion of her business. Plaintiff received an SBA guaranteed loan through the bank in July of 1980 which she personally guaranteed and secured with some land in Sandy, Utah. Plaintiff claims to have met regularly with various officers and employees to discuss, among other things, the feasibility of expanding her typewriter company business to include office furniture and getting more office and floor space for display.
In early 1981 additional space became available adjacent to plaintiff's business. She spoke with Mr. Scott Seare, a bank vice president, concerning the need for $45,000.00 to $55,000.00. Mr. Seare allegedly assured her that obtaining a second SBA loan would "pose no problem" and that the equity she had in commercial property "almost guaranteed" obtaining the loan. In anticipation of an SBA loan, on June 2, 1981, pursuant to a line of credit, the bank loaned to plaintiff's company $50,000.00 which became due in full on November 30, 1981. The loan was personally guaranteed by plaintiff. It was contemplated by the bank and the plaintiff that the obligation would be paid when the second SBA loan was obtained. However, on August 1, 1981, the SBA advised the bank that the loan application had been declined, and it was again reviewed and declined in October. In December, the plaintiff and her company were in default on the $50,000.00 loan from the bank and the bank initiated legal proceedings.
Interest on the $50,000.00 note was set at "prime plus three," adjusted quarterly. The actual interest paid was 23% plus. Although a second SBA loan was sought in June 1982, which was to be based upon reappraisal of plaintiff's property at a value of $160,000.00 greater than before, such was never obtained because plaintiff took out bankruptcy as did her company.
Plaintiff alleges violation by defendants of RICO in two separate counts, for claimed fraud relating to interest charged based upon the prime rate (Seventh Count) and for claimed fraudulent misrepresentations in an oral agreement concerning the SBA loan which was never extended (Eighth Count). The "pattern of racketeering activity" alleged as to each fraudulent scheme is use of the United States mails and transmission in interstate commerce by means of wires at least twice in a ten year period, i.e., "not less than two acts of `racketeering activity.'" The mail and wire fraud acts constitute the "predicate acts" upon which the RICO counts are based.
Plaintiff alleges that defendants falsely and fraudulently represented to plaintiff that the interest charged on the Prime-tied loan was based on the bank's "prime rate," but that in fact the interest charged was not the bank's lowest commercial rate. However, plaintiff specifically alleges that "at no time was the plaintiff advised as to what `prime plus three' meant, what prime rate meant or how the BANK arrived at a set interest rate."
Plaintiff alleges that defendants falsely and fraudulently represented to plaintiff that they were honestly and in good faith complying with an agreement between the bank and plaintiff concerning a contemplated SBA loan, when in truth and in fact this was part of a scheme to defraud plaintiff. However, plaintiff specifically alleges as to the agreement in question that the bank vice president "assured the plaintiff that the obtaining of a second SBA loan would pose no problem and that the plaintiff was almost guaranteed to obtain the loan...."
Defendants' urge dismissal of plaintiff's Complaint on at least six separate grounds, each of which will be considered.
Defendant argues that the real purpose of RICO is to proscribe truly criminal activity and that its treble damages sanctions do not and should not reach ordinary commercial disputes. In this connection, defendants urge that even if commercial loans were extended by banks at rates under the prime rate, this has been such a widespread commercial practice that it could not be regarded as conduct of a criminal nature. That argument begs the question. Indeed, the practice of loaning money at or below the prime rate may well be a widespread commercial practice, and of itself may not be criminal in nature. We need not pass on that point, however, because plaintiff's complaint alleges that defendants engaged in a scheme to obtain money by fraudulent pretenses and representations regarding the interest rate to be applied to plaintiff's line of credit. Obtaining money by false pretenses clearly falls within the definition of criminal activity and is specifically prohibited by federal law when the U.S. Postal Service or wires are used to further the alleged scheme. See Morosani v. First National Bank of Atlanta, 703 F.2d 1220 (11th Cir.1983).
Defendant further suggests that RICO should not be applied to legitimate businesses. The overwhelming weight of authority is to the contrary. The most recent construction of the RICO statute by the Supreme Court so states:
Sedima, S.P.R.L. v. Imrex Co., ___ U.S. ___, 105 S.Ct. 3275, 3287, 87 L.Ed.2d 346 (1985). Also, the Supreme Court fortified the view that the RICO statute, literally interpreted, does reach and cover ordinary commercial activity, holding that there is no requirement that a private action under RICO can proceed only against a defendant who has been convicted of a predicate act or a RICO violation. Id. 105 S.Ct. at 3282-84.
Plaintiff brings this action in her individual capacity under RICO for injuries allegedly inflicted upon the corporation, and for injuries allegedly inflicted upon her as personal guarantor of the corporate line-of-credit. The defendant argues that the plaintiff lacks standing under the "any person" language of 18 U.S.C. § 1964 to sue in her individual capacity on behalf of the corporation. The defendant does not address plaintiff's standing or lack thereof as to plaintiff's claimed injury as guarantor of the loan.
The RICO statute provides in pertinent part that "any person injured in his business or property by reason of violation of section 1962 ... may sue therefor in any appropriate United States District Court...." Assuming proper pleading of a violation of section 1962, the question becomes who was the victim of the alleged violations. The representations regarding the SBA loan and the prime interest rate were made to plaintiff in the context of improvement and expansion of the corporation. Plaintiff's role in the transactions was as agent for the corporation. Although plaintiff may have been a shareholder, employee, director, and officer of the corporation, any injury incurred was actually sustained by the corporation first, and the plaintiff only incidentally or derivatively. Applying basic principles of corporate law, the Court agrees with defendant that where the corporation is defrauded, the corporation has a cause of action against the wrongdoer. Assuming the requisites of RICO have been met, the corporation, as the "person" injured, would be entitled to take advantage of RICO's treble damages sanctions. An action to redress injuries to the corporation by those derivatively injured through...
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