Guidry v. Bank of LaPlace

• Decision Date: 25 February 1992
• Docket Number: No. 90-3428,90-3428
• Citation: 954 F.2d 278
• Parties: , RICO Bus.Disp.Guide 7952 Robert J. GUIDRY, Plaintiff-Appellant, v. BANK OF LaPLACE, etc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 278

954 F.2d 278

60 USLW 2576, RICO Bus.Disp.Guide 7952

Robert J. GUIDRY, Plaintiff-Appellant, v. BANK OF LaPLACE, etc., et al., Defendants-Appellees.

No. 90-3428.

United States Court of Appeals, Fifth Circuit.

Feb. 25, 1992.

Arthur A. Lemann, Lemann, O'Hara & Miles, New Orleans, La., for Robert J. Guidry.

Byron Franklin Martin, III, McGlinchey & Stafford, New Orleans, La., for Bank of LaPlace, Patrick Guidry.

Thomas K. Potter, III, R. Patrick Vance, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, La., for FNBC.

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

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

GARWOOD, Circuit Judge:

Plaintiff-appellant Robert J. Guidry (Guidry) appeals the dismissal on the pleadings of his complaint alleging various counts of racketeering, fraud, and negligence. 740 F.Supp. 1208. Guidry's injury stems from his unwitting participation in a criminal "Ponzi" ¹ and check kiting scheme masterminded by Lynn Paul Martin (Martin). Martin, not a defendant in this action, pleaded guilty to criminal charges stemming from this scheme and is currently serving a fifteen-year prison sentence. The defendants-appellees in this matter are: the Bank of LaPlace (BOL), where Martin kept a bank account through which he administered the Ponzi scheme; Patrick Guidry (P. Guidry), a director of BOL; and the First National Bank of Commerce ^BC, a bank that provided check-clearing services to BOL and at which Guidry had an account during a portion of the twenty months that he was involved with Martin.

Guidry's complaint alleges violations of two sections of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., and several violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, (the 1934 Act), and Rule 10b-5 promulgated thereunder, and sections 12(1) and 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(1) & (2), (the 1933 Act). All these federal claims were dismissed with prejudice for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure (Fed.R.Civ.P.).

Guidry's complaint also alleges several Louisiana state law claims over which the district court exercised pendent jurisdiction. The district court dismissed with prejudice Guidry's state securities law and negligence claims on Rule 12(b)(6) grounds and dismissed with prejudice Guidry's allegations of fraud on the ground that Guidry failed to state those claims with particularity as required by Fed.R.Civ.P. Rule 9(b).

Guidry appeals the dismissal of all claims and, alternatively, argues that if the district court did correctly dismiss the federal claims, it should have dismissed the state law claims without prejudice for lack of jurisdiction.

I. The Facts

We review de novo a district court's dismissal on the pleadings. Walker v. South Central Bell Telephone Co., 904 F.2d 275 (5th Cir.1990). We accept the complaint's well-pleaded factual allegations as true. O'Quinn v. Manuel, 773 F.2d 605 (5th Cir.1985). However, "[i]n order to avoid dismissal for failure to state a claim, a plaintiff must plead specific facts, not mere conclusory allegations...." Elliott v. Foufas, 867 F.2d 877, 881 (5th Cir.1989). And, "[c]onclusory allegations and unwarranted deductions of fact are not admitted as true" by a motion to dismiss. Associated Builders, Inc. v. Alabama Power Company, 505 F.2d 97, 100 (5th Cir.1974). Therefore, in deciding whether Guidry's complaint sufficiently states any claims against the defendants, we must set forth the facts well-pleaded by the complaint (including the RICO Case statement, filed by Guidry below in accordance with the local rules, and Guidry's first supplemental and amending complaint).

In 1982, Martin began a scheme in which he convinced his victims to provide him with funds he would use to purchase large blocks of airline tickets for groups taking gambling trips to Las Vegas. Martin told his victims that certain Las Vegas hotels would reimburse him for the tickets and pay him a commission. Each victim gave Martin a check to provide Martin funds to purchase the tickets, and in return Martin gave each victim two checks, both post-dated one month later. One check was for the amount of the victim's check, and the other represented the victim's return on that amount. ²

The airline tickets and arrangements with the Las Vegas hotels were fictitious. Martin kept his scheme alive by using checks from later victims to honor the checks given to his earlier victims.

Guidry wrote his first check to Martin on August 28, 1986, on the advice of an individual named Martinez. ³ Over the next 20 months, Guidry engaged in approximately 331 similar transactions with Martin representing a total of over $170,000,000 advanced by Guidry to Martin. ⁴ In April 1988, Martin's scheme finally collapsed and Guidry was left holding worthless checks from Martin for over $12,000,000, roughly $7,000,000 of which was reinvested returns on earlier Guidry checks to Martin; Guidry sustained a net loss in his relationship with Martin of approximately $5,500,000.

By the time Guidry began dealing with Martin, Martin was conducting his scheme through LPM Enterprises (LPM), an unincorporated sole proprietorship that was merely an alter ego of or name for Martin himself. The BOL checking account was in LPM's name.

FNBC solicited Guidry as a bank customer from June 1986 through mid-December 1986 offering Guidry, among its other services, that of "investment expertise." Also, according to the complaint, FNBC officers "expressed [an] awareness as to the legitimacy of the investment contract gained from prior dealings with Martin and investors." For the first some thirteen months of his participation in Martin's scheme, the checks written by Guidry to Martin were not drawn on FNBC (or BOL); however, thereafter Guidry commenced writing his checks to Martin on a checking account Guidry had opened at FNBC, because FNBC permitted Guidry to draw on uncollected Martin checks.

According to Guidry, in addition to the instances already set forth, the defendants participated in the scheme in the following ways:

BOL and P. Guidry aided and abetted Martin by:

(i) Permitting Martin to operate the scheme out of a BOL checking account;

(ii) Leading investors to believe that Martin was operating a legitimate business;

(iii) Permitting Martin to overdraw his checking account on a regular basis and in substantial amounts;

(iv) Manipulating Martin's checking account to extend the life span of the scheme;

(v) Concealing the scheme or, alternatively, consciously avoiding discovery of the scheme.

Additionally, P. Guidry "advised" Guidry and led him to believe that Martin's scheme was legitimate at various times throughout Guidry's relationship with Martin.

FNBC aided and abetted Martin by:

(i) Advising Guidry to participate in Martin's scheme though it knew that the scheme was fraudulent;

(ii) Using its relationship with BOL (provision of check-clearing services) to further the scheme;

(iii) Concealing the scheme or, alternatively, consciously avoiding discovery of the scheme.

Further, sometime in July 1987, officers of FNBC met with Guidry and "advised" him as to his participation in Martin's scheme.

Additionally, at various times throughout Guidry's relationship with Martin, Martinez continued to express his awareness and opinions, and supply information as to the legitimacy of Martin's operation. Finally, on or about April 26, 1988, after Martin had confessed the scheme to the FBI, Martinez told Guidry that FNBC had always known that Martin's scheme was fraudulent.

II. The Federal Law Claims

A. The RICO Claims

The district court dismissed the RICO claims against the defendants on the ground that Guidry failed in his complaint to sufficiently allege an "enterprise" as defined by 18 U.S.C. § 1961(4) and used in 18 U.S.C. § 1962(c). Guidry, in his complaint, alleged that:

"From on or about June 1, 1982 and continuously thereafter, up to and including April, 1988, ... a bank account in the name of Martin, Special Account at BOL, and LPM constituted an enterprise ... for the purpose of perpetrating a 'Ponzi' and check kiting scheme through the commission of various criminal acts...."

Section 1961(4) defines an "enterprise" as including "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity[.]"

Apparently, the district court assumed that the phrase "a bank account in the name of Martin, Special Account at BOL, and LPM" referred to a bank account with two names assigned to it (Martin's and LPM's) rather than a bank account (in Martin's name) and an unincorporated proprietorship (LPM). In assuming the former interpretation, the district court found that "the question is whether a bank account is a valid RICO enterprise."

1. Bank accounts as enterprises

In defining the contours of section 1961(4)'s definition of "enterprise," the Fifth Circuit has preferred an "animate/inanimate object" test. Thus, in this Circuit, "inanimate objects, such as coffee, or intangible rights, such as contract rights, cannot possibly constitute a RICO 'enterprise,' which must be either an individual or a 'legal entity,' such as a corporation, or an association of 'individuals.' " Old Time Enterprises v. International Coffee Corp., 862 F.2d 1213, 1218 (5th Cir.1989). See also Elliott, 867 F.2d at 881.

A bank account is a debt that a bank owes to the depositor. Thus, it is closely analogous to the "intangible rights, such as contract rights" spoken of in Old Time Enterprises and is not analogous to a legal entity such as a corporation or to an association of individuals, and therefore cannot constitute an "enterprise" under RICO. Accord In re Catanella and E.F. Hutton & Co. Securities Litigation, 583 F.Supp. 1388,...