Leach v. Federal Deposit Ins. Corp.

Decision Date02 December 1988
Docket NumberNo. 87-1921,87-1921
Citation860 F.2d 1266
Parties, RICO Bus.Disp.Guide 7090 Judith Diane Duff LEACH, Etc., et al., Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Linda L. Rutherford, Jeff Joyce, Dallas, Tex., for MBank Dallas.

John C. Sims, Lubbock, Tex., for Herman.

Wm. F. (Pete) Baker, Abilene, Tex., for Watts, Hart & Newcomb.

Cecil C. Kuhne, Tom S. Milam, Lubbock, Tex., for Clark, Dearing, Hoffman, Wickson, Haralson, Clothes & Caule.

George Shivers, Dallas, Tex., pro se.

Tom S. Richards, Dallas, Tex., for Skelton.

Paul Condit, Seminole, Tex., pro se.

Michael H. Carper, Lubbock, Tex., for Condit.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, HIGGINBOTHAM and DAVIS, Circuit Judges.

GOLDBERG, Circuit Judge:

Bodyless souls do not walk with feet of clay. Without feet, they cannot stand. The Plaintiffs-Appellants in this case would have us don sovereign robes and create feet of clay for them. We shall not array ourselves with such fine garments, and thus we will not, and cannot, accede to the Plaintiffs' request. 1

Plaintiffs are minority shareholders of the Seminole State National Bank ("Bank"). The Appellees-Defendants include former directors and officers of the failed Bank 2, the Federal Deposit Insurance Corporation, in its capacity as Receiver of the failed Bank, and MBank Dallas, a creditor of the failed Bank. According to the complaint, Plaintiffs' Bank stock lost all of its value because of mismanagement of the Bank by Defendant directors. Plaintiffs asserted two causes of action against the Defendants. The first claim arises under the National Bank Act, 12 U.S.C. Sec. 93(a) (1982). The second claim arises under 18 U.S.C. Sec. 1964(c) (1982), the Racketeer Influenced and Corrupt Organization Act ("RICO").

The district court granted the Defendants' motions to dismiss for failure to state a claim for lack of standing. We agree, and hold that a minority shareholder cannot assert a claim as an individual under the circumstances of this case pursuant to either the National Bank Act, Section 93(a) or RICO, Section 1964(c). Accordingly, we AFFIRM the judgment of the district court.

I. FACTUAL BACKGROUND

According to Plaintiffs' first amended complaint, 3 they owned approximately 3,300 shares of the Bank's stock which constituted a minority ownership in the Bank. The directors and officers allegedly failed to manage properly the business matters of the Bank and failed to advise the Plaintiffs in a proper and timely manner of the true financial condition of the Bank. Plaintiffs allege that MBank concealed the true financial condition of the Bank from the Plaintiffs when MBank Dallas knew of, and helped to conceal, the fraud and mismanagement perpetrated by the Defendant directors. Plaintiffs allege that they have suffered actual damage because they have lost the value of their stock as a direct result of the Defendants' misbehavior.

Our decision focuses on whether the Plaintiffs have standing to assert claims arising from the diminution in the value of

their stock. The Plaintiffs filed their complaint on March 14, 1986. This was nearly two years after the Comptroller of the Currency declared the Bank insolvent and appointed the FDIC as Receiver of the Bank on March 16, 1984. Before filing their complaint, Plaintiffs did not make a demand on the FDIC-Receiver requesting the FDIC to file a direct action against the Defendant directors. As we shall see, this plays a significant role in our standing inquiry. 4

II. DISCUSSION

The district court dismissed Plaintiffs' first amended complaint for a lack of standing. It held that for minority shareholders to maintain an action under either the National Bank Act, 12 U.S.C. Sec. 93(a), or RICO, 18 U.S.C. Sec. 1964(c), Plaintiffs needed to allege "some injury other than a decline in the value of the bank stock in order to state a direct, personal injury distinct from that suffered by the corporation that would permit [the Plaintiffs] to maintain an individual cause of action." The district court then gave the Plaintiffs leave to amend their complaint, against all Defendants except the FDIC, to allege a direct injury or state another cause of action. The Plaintiffs did not file another complaint. Plaintiffs now urge us to reverse the district court and find that they have standing to assert their claims against the Defendants.

The Plaintiffs assert that they have standing to sue under both the National Bank Act, 12 U.S.C. Sec. 93(a), RICO, 18 U.S.C. Sec. 1964(c), and the Federal Reserve Act, 12 U.S.C. Sec. 503. An earlier decision of this court, Crocker v. Federal Deposit Insurance Co., 826 F.2d 347, 349 (5th Cir.1987), controls the RICO claim. In contrast, the National Bank Act issue, requires a fuller and more detailed consideration. Nonetheless, we conclude that these minority shareholders do not have standing to assert their claim under 12 U.S.C. Sec. 93. The Plaintiffs also contend improperly that they have a cause of action under the Federal Reserve Act, 12 U.S.C. Sec. 503. They failed to raise this claim below and we will not consider it now.

A. Minority Shareholders' Standing Under The National Bank

Act, 12 U.S.C. Sec. 93(a)

For the court to hear a person's complaint, a person must have "standing" to assert the claim. The Supreme Court has expressed the notion of standing using various verbal formulae over the years. Some of these tests have included (1) "the injury in fact" and "zone of interest" tests, Association of Data Processing Serv. Orgs. v. Camp, 397 U.S. 150, 152, 90 S.Ct. 827, 829, 25 L.Ed.2d 184 (1970); (2) "the threatened or actual injury" test, Linda R.S. v. Richard D., 410 U.S. 614, 617, 93 S.Ct. 1146, 1148, 35 L.Ed.2d 536 (1973); and (3) "whether the constitutional or statutory provision on which the claim rests properly can be understood as granting person in Plaintiff's position a right to judicial relief." Warth v. Seldin, 422 U.S. 490, 500, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975).

Essentially, standing analysis involves two separate prongs. The first prong is "injury in fact." Association of Data Processing Serv. Orgs., Inc. v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 830, 25 L.Ed.2d 184 (1970). This prong tests a person's genuine concern with the case in order to insure the integrity of the adversarial process. Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 758, 70 L.Ed.2d 700 (1982). Sometimes Congress statutorily defines who is injured in fact. Linda R.S. v. Richard D., 410 U.S. 614, 617 n. 3, 93 S.Ct. 1146, 1148 n. 3, 35 L.Ed.2d 536 (1973). Our case does not involve this "injury in fact" prong. Plaintiffs have alleged a real and distinct injury--the loss of the value of their stock.

It is the second prong of standing law, what is sometimes referred to as the "zone of interest" test, that is the focus of our decision. "The zone of interest test is a

                guide for deciding whether ... a particular plaintiff should be heard to complain of a particular" injury.  Clarke v. Securities Industry Ass'n, 479 U.S. 388, 107 S.Ct. 750, 757, 93 L.Ed.2d 757 (1987);  see Block v. Community Nutrition Institute, 467 U.S. 340, 347, 104 S.Ct. 2450, 2454-55, 81 L.Ed.2d270 (1984) (essential inquiry is whether Congress intended a particular class of plaintiffs to be able to sue).  "The test is not meant to be especially demanding;  in particular, there need be no indication of congressional purpose to benefit the would-be plaintiff."    Clarke, 107 S.Ct. at 757
                
1. History of 12 U.S.C. Sec. 93(a)

To decide whether a plaintiff is arguably within the zone of interest recognized by a particular statute, it is necessary first to examine the statute itself to determine whether Congress intended to allow the plaintiff to sue.

On its face, 12 U.S.C. Sec. 93(a) is worded broadly and appears to allow a wide range of suits for injuries allegedly resulting from the misconduct of a bank's directors, agents or officers. However, the historical context in which the provision was passed, the judicial decisions which followed its passage, and judicial decisions from the modern era, all militate in favor of a narrower reading of Section 93(a) than the reading advocated by Plaintiffs. Thus, we conclude that Congress intended the statute, 12 U.S.C. Sec. 93(a) to differentiate between persons who have suffered injury which the law treats as "corporate" injury and persons who have suffered injury which the law treats as "personal" to the person.

For example, when a director embezzles the assets of a corporation, and the value of the corporation's stock falls as a result, the law treats the corporate body as the injured party, not the individual stockholder who has lost the value of his stock. On the other hand, the law treats a person who buys stock in reliance on false information from a director as personally injured by the director's conduct. See Chesbrough v. Woodworth, 244 U.S. 72, 88, 37 S.Ct. 579, 586, 61 L.Ed. 1000 (1917). On a certain level, the difference is a matter of diffusion of injury. That is, when all shareholders are wounded it is the corporate body itself which the law treats as experiencing the pain. When only one person suffers and the other shareholders have not been hurt by the misconduct, the law recognizes that person's pain as personal.

Plaintiffs in this case seek to show that they are different from all the other stockholders because they are the only ones who have lost money from the directors' mismanagement. However, corporate law, as it existed when the National Bank Act was passed in 1864, treated a director's mismanagement, resulting in a diminution in the...

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