Mid-State Fertilizer v. Exch. Nat. Bank of Chicago

• Decision Date: 06 July 1988
• Docket Number: No. 87 C 1078.,87 C 1078.
• Citation: 693 F. Supp. 666
• Parties: MID-STATE FERTILIZER CO., an Illinois corporation, Lasley Kimmel, and Maxine Kimmel, Plaintiffs, v. The EXCHANGE NATIONAL BANK OF CHICAGO, Defendant.
• Court: U.S. District Court — Northern District of Illinois

693 F. Supp. 666

MID-STATE FERTILIZER CO., an Illinois corporation, Lasley Kimmel, and Maxine Kimmel, Plaintiffs, v. The EXCHANGE NATIONAL BANK OF CHICAGO, Defendant.

No. 87 C 1078.

United States District Court, N.D. Illinois, E.D.

July 6, 1988.

COPYRIGHT MATERIAL OMITTED

James W. Wexstten, Mt. Vernon, Ill., Thomas E. Leiter, Leiter, Leiter & Sahn, Peoria, Ill., for plaintiffs.

David L. Piercy, Howard & Howard, Mt. Vernon, Ill., David N. Missner, Franklin S. Schwerin, Angel Rodriquez, Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., Mark G. Arnold, Dorothy White-Coleman, Husch, Eppenberger, Donohue, Cornfeld & Jenkins, St. Louis, Mo., for defendant.

MEMORANDUM OPINION AND ORDER

HART, District Judge.

Plaintiffs in this case are Mid-State Fertilizer Company and its two shareholders, Lasley and Maxine Kimmel. The Kimmels are also officers of Mid-State. The defendant is The Exchange National Bank of Chicago.¹ In February 1985, Exchange provided a two-million-dollar line of credit to Mid-State. Repayment of this loan was secured by a security agreement imposing a first lien on all of Mid-State's nonreal property, including accounts receivable, inventory, equipment, general intangibles, and proceeds. The Kimmels also personally guaranteed the loans. Mid-State was required to establish a checking account from which it could pay all its operating expenses. Deposits were made from the credit line to the checking account to the extent of available collateral as determined by borrowing base certificates submitted by Mid-State. Mid-State was also required to establish a lock box account with Exchange. Customers of Mid-State made payments through the lock box. Mid-State could not withdraw money from the lock box. Instead, the funds in that account were applied to Mid-State's outstanding loan balance. The line of credit expired on November 30, 1985, but was renewed that December for another year. In May 1986, though, Exchange began to cut off the line of credit and declared a default on May 19 and 22. At that time Exchange contacted some of Mid-State's customers to ask them to make payments to Exchange.

Plaintiff's amended complaint contains four federal counts and nine pendent state law counts. The parties agree Illinois law controls on the state counts. The thirteen counts are designated as follows: I—12 U.S.C. § 1971 Tying Arrangement; II—12 U.S.C. § 1972 Tying Arrangement; III—18 U.S.C. § 1961 RICO; IV—18 U.S.C. § 1962 RICO; V—Common Law Fraud; VI— Breach of Fiduciary Duties; VII—Breach of Duty as Agent; VIII & IX—Bad Faith Dealing/Breach of Contract; X—Tortious Interference with and Control of Business; XI, XII & XIII—Defamation. Counts I, III, V, VI, VIII, X, and XI are brought by Mid-State. Counts II, IV, and IX are brought by the Kimmels. Count XII is brought by Lasley Kimmel and Count XIII by Maxine Kimmel. Defendant has moved for summary judgment on all counts.

On a motion for summary judgment, the entire record is considered with all reasonable inferences drawn in favor of the nonmovant and all factual disputes resolved in favor of the nonmovant. Oxman v. WLS-TV, 846 F.2d 448, 452 (7th Cir. 1988); Jakubiec v. Cities Service Co., 844 F.2d 470, 471 (7th Cir.1988). The burden of establishing a lack of any genuine issue of material fact rests on the movant. Id. at 473. The nonmovant, however, must make a showing sufficient to establish an essential element for which it will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In such instances, the movant need not provide affidavits or deposition testimony showing the nonexistence of these essential elements. Id. at 324, 106 S.Ct. at 2553. Also, it is not sufficient to show evidence of purportedly disputed facts if those facts are not plausible in light of the entire record. Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 476-77 (7th Cir.1988).

Defendant argues plaintiffs have no standing under the Bank Holding Company Act ("BHCA"). Section 1975 of Title 12 provides that any person injured in his business or property by reason of anything forbidden by 12 U.S.C. § 1972 may bring a suit for damages under the BHCA. Standing under the BHCA has been limited to direct injuries. See Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440 (5th Cir.), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986); Omega Homes, Inc. v. Citicorp Acceptance Co., 656 F.Supp. 393, 403 (W.D.Va.1987). See also Sundance Land Corp. v. Community First Federal Savings & Loan Association, 840 F.2d 653, 660 (9th Cir.1988). A stockholder who is injured merely because the value of his investment in a company suffering BHCA violations has dropped does not have standing under the BHCA. See Campbell, supra; Sundance supra; Costner v. Blount National Bank of Maryville, Tennessee, 578 F.2d 1192, 1195 (6th Cir.1978). However, where the stockholder was also the guarantor of the loan and therefore a customer of the bank, the stockholder has standing. Swerdloff v. Miami National Bank, 584 F.2d 54, 60 (5th Cir.1978); Continental Illinois National Bank & Trust Co. of Chicago v. Stanley, 585 F.Supp. 1385, 1388 (N.D.Ill. 1984). Defendant tries to limit Swerdloff and Stanley to injuries in a plaintiff's capacity as guarantor. It is clear, however, that Swerdloff is not so limited. See id., 584 F.2d at 58-60. Stanley follows Swerdloff and refers principally to the conclusion that guarantors are customers and therefore have standing. Judge Bua concluded that Stanley had standing as a stockholder and guarantor. Stanley, 585 F.Supp. at 1388. If defendant's analysis was true, Stanley would only have had standing as a guarantor. This court agrees with Swerdloff and Stanley. The Kimmels were customers of Exchange—to the extent they suffered injury from the tying arrangement, they have standing under the BHCA.

Defendant still argues that Mid-State's losses were not caused by the purportedly illegal tying arrangement. To the extent this is true, the Kimmels' losses also would not be tying losses. To support its claim that Mid-State suffered a loss due to the tying arrangement, plaintiffs point only to one paragraph in the affidavit of its financial expert, William Bryan.² The paragraph states, "Further, it is my opinion that the handling of the loan arrangement and use of the locked box or blocked account by Exchange National Bank personnel was such that the likely and predictable result was the demise of Mid-State as a going concern." Bryan states he examined the pleadings, depositions, and documents in this case, but he does not recite any of the specific facts or steps in his reasoning that led him to the conclusion stated in paragraph 8 of his affidavit. Plaintiffs therefore have failed to satisfy their burden of showing specific facts in support of an essential element of their cause of action. See Evers v. General Motors Corp., 770 F.2d 984, 986 (11th Cir. 1985); United States v. Various Slot Machines on Guam, 658 F.2d 697, 700-01 (9th Cir.1981).

Even if plaintiffs have shown they suffered injury, they have not shown a violation of § 1972.

A plaintiff must plead and prove three things to recover under the anti-tying provision of the Bank Holding Company Act, 12 U.S.C. § 1972(1). First, the plaintiff must show that the banking practice in question was unusual in the banking industry. Second, the plaintiff must show an anti-competitive tying arrangement. Third, the plaintiff must demonstrate that the practice benefits the bank.

June 18, 1987 Order at 4 (quoting Rae v. Union Bank, 725 F.2d 478, 480 (9th Cir. 1984)). The affidavit of plaintiffs' expert raises a disputed factual issue as to whether the first element was satisfied. Plaintiffs, however, have not shown that they were required to perform all banking business with Exchange. Mid-State was only required to deposit its account receivables with Exchange. Also, the affidavit of Bryan is too conclusory to create a factual dispute as to whether the lock box requirement was an unreasonable means of protecting the loan.

An unusual banking practice does not, by itself, establish a § 1972 violation. Parsons Steel v. First Alabama Bank of Montgomery, 679 F.2d 242, 245 (11th Cir. 1982), rev'd on other grounds, 474 U.S. 518, 106 S.Ct. 768, 88 L.Ed.2d 877 (1986). As a matter of law, requiring business deposits to be deposited in the lending bank is not an improper anticompetitive practice. See Nesglo, Inc. v. Chase Manhattan Bank, N.A., 506 F.Supp. 254, 264 (D.P.R. 1980), withdrawn as moot, 562 F.Supp. 1029 (D.P.R.1983). Plaintiffs have not made an adequate showing establishing the second § 1972 element.

Counts I and II are dismissed. Plaintiffs have failed to show either injury or an illegal, anticompetitive tying arrangement.

Defendant also argues that plaintiffs have no standing to bring Counts III and IV, the claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Count III alleges Exchange committed § 1962(a) violations upon Mid-State. It is alleged that Exchange fraudulently represented that moneys deposited into the lock box account would be credited to the loan as soon as available. In many instances, however, the funds were not credited until a day or more after they were available. It is further alleged that the mails were used in this scheme. Mid-State allegedly suffered by not having use of the money as soon as it should have and by being forced out of business and into bankruptcy. In Count IV, it is alleged that, as guarantors of the loans, the Kimmels suffered from the same scheme in that they were fraudulently induced into being guarantors and Exchange is seeking to collect the loan from them and suppliers of Mid-State are seeking to collect on guarantees the Kimmels made to the suppliers.

Plaintiffs have failed to respond to defendant's argument that they lack RICO standing.³ On the other hand, defendant...