Swerdloff v. Miami Nat. Bank

• Decision Date: 13 November 1978
• Docket Number: No. 76-1919,76-1919
• Citation: 584 F.2d 54
• Parties: Arthur SWERDLOFF and Louis Swerdloff, Plaintiffs-Appellants, v. MIAMI NATIONAL BANK, a National Banking Association, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 54

584 F.2d 54

Arthur SWERDLOFF and Louis Swerdloff, Plaintiffs-Appellants, v. MIAMI NATIONAL BANK, a National Banking Association Defendant-Appellee.

No. 76-1919.

United States Court of Appeals Fifth Circuit.

Nov. 13, 1978.

Rehearing Denied Dec. 18, 1978.

Carl H. Hoffman, Miami, Fla., for plaintiffs-appellants.

Frates, Floyd, Pearson, Stewart, Richman & Greer, Kenneth J. Weil, David J. White, James D. Little, Kenneth F. Claussen, Helliwell Melrose & DeWolf, William E. Sadowski, Robert J. Schaffer, Miami, Fla., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before JONES, RONEY and TJOFLAT, Circuit Judges.

RONEY, Circuit Judge:

This case of first impression concerns whether the two 100% Shareholders of a corporation, who were guarantors of a loan made by a bank to their corporation, have standing to bring suit against the bank under a federal law which protects bank customers from being required as a loan condition to provide additional credit, property, or service to the bank not usually required of other customers. The Bank Holding Company Act Amendments of 1970, 12 U.S.C.A. §§ 1972(3), 1975. The complaint alleged that the stockholders, not the corporation, were required to provide the prohibited "additional" service if the loan to the corporation was to be continued. The district court granted a judgment on the pleadings for the bank on the ground that the corporation, not the stockholders, was the bank's customer, so that the stockholders had no standing to enforce the statute's provisions.

Under a 1972 Accounts Receivable Financing Agreement, Miami National Bank lent money to Standard Container & Paper Co. upon the assignment of the company's receivables as collateral. Standard Container was wholly-owned by the Swerdloffs and operated as a family business. As part of the financing plan, the bank required the Swerdloffs personally to guarantee the loans. In the midst of an expansion program, after Standard Container had become heavily dependent upon the financial arrangement, Miami National advised the Swerdloffs that it would no longer honor the arrangement unless 51% Of the capital stock of Standard Container was transferred to Arrow Paper & Chemical Co., Inc., one of the bank's other customers. The bank allegedly threatened to put Standard Container out of business if the Swerdloffs did not accede to the transfer.

After the Swerdloffs refused to transfer their stock, they contend that Miami National retaliated by terminating the financing arrangement. Consequently, Standard Container was forced out of business and placed in involuntary bankruptcy. Its stock became worthless and one of the plaintiffs, Arthur Swerdloff, lost his source of employment.

The Swerdloffs thereupon commenced the instant proceedings under the Bank Holding Company Act against Miami National.

Although these facts are contested by defendant bank, they must be accepted as true in a motion for judgment on the pleadings. Stanton v. Larsh,239 F.2d 104 (5th Cir. 1957); Fed.R.Civ.P. 12(c). The question then is whether these facts, as alleged, state a violation of 12 U.S.C.A. § 1972(3) and whether plaintiffs have standing to bring a private civil action under12 U.S.C.A. § 1975.

The Bank Holding Company Act prohibits a bank from conditioning credit upon the requirement that "the customer provide some additional credit, property, or service" to the bank other than that "usually provided in connection with a loan . . . ." 12 U.S.C.A. § 1972(3). ¹ The Act further provides that "(a)ny person who is injured in his business or property" by a violation of that prohibition may sue for three times the damages sustained plus costs and attorney's fees. 12 U.S.C.A. § 1975. ²

Miami National contends that no violation of § 1972(3) has been stated because the alleged demands were made upon the Swerdloffs, not Standard Container, and the Swerdloffs were not "customers" within the meaning of the subsection. In any event, the bank argues there was no requirement of some additional service "to such bank" because the stock was to be transferred to Arrow Paper, not the bank.

Swerdloffs Were Customers

Miami National argues that the Swerdloffs could not be its customers because they maintained no account and because they were not parties to the financing agreement with Standard.

Although the chapter of the Bank Holding Company Act which deals with tying arrangements contains a definitional section, no definition of the term "customer" is given. Because of the dearth of case law, it is necessary to look to the purpose of the Act and the general principles of statutory construction in construing the term.

Adopted in 1970, Chapter 22 of the Bank Holding Company Act, 12 U.S.C.A. §§ 1971-1978, is directed at tying arrangements involving banks. The amendment arose out of the concern "that there be adequate safeguards against the possibility of misuse of the economic power of a bank." (1970) U.S.Code Cong. & Admin.News, p. 5535. The provisions were directed at those abuses that would "lead to a lessening of competition or unfair competitive practices." They were intended "to affirm in statutory language the principles of fair competition." While the provision was expressly designed not to interfere with "the conduct of appropriate traditional banking practices,"

(t)he purpose of this provision is to prohibit anti-competitive practices which require bank customers to accept or provide some other service or product or refrain from dealing with other parties in order to obtain the bank product or service they desire.

Id.

The economic realities of ownership and control must be considered in determining who is a "customer" within the meaning of this section if the purpose of the Act is to be accomplished. A great deal of important business is done through closely held corporations. To decide in favor of the bank here would mean that banks throughout the country could require all manner of anticompetitive practices of the stockholders of such corporations with impunity. The law cannot be unmindful of the fact that substantial credit to such corporations is generally extended because of the credit rating of the stockholder guarantors, regardless of the credit-worthiness of the corporation itself. This credit practice recognizes that the financial fortunes of closely held corporations can turn directly upon the maneuverings of the stockholders.

In the absence of a statutory definition, it is reasonable to draw upon the ordinary meaning of a word. United States v. National Broiler Marketing Ass'n, 550 F.2d 1380, 1386 (5th Cir. 1977), Aff'd,--- U.S. ----, 98 S.Ct. 2122, 56 L.Ed.2d 728 (1978). In common usage, a customer is one who has business dealings with another or who purchases a commodity or service. See, e. g., Aiken Mills, Inc. v. United States, 53 F.Supp. 524, 526 (E.D.S.C.1944). While the Swerdloffs did not maintain an account with Miami National, they did enter into a contract of guarantee on which they were liable. Such a transaction certainly constitutes a business dealing with a bank.

In this regard, the antitrust laws provide a helpful analogy. The district court noted that reference to antitrust statutes and decisions was " most pertinent" in view of the substantial similarity of the Acts. Swerdloff v. Miami National Bank, 408 F.Supp. 940, 942 (S.D.Fla.1976). In the context of an alleged unfair competition violation of section 2(d) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13(d), the Second Circuit has avoided a narrow interpretation of "customer." American News Co. v. FTC, 300 F.2d 104, 108-110 (2d Cir. 1962), Cert. denied, 371 U.S. 824, 83 S.Ct. 44, 9 L.Ed.2d 64 (1962). In American News, the court held that a "customer" within the meaning of the Act need not deal directly nor be in privity of contract as long as the seller maintains control over the price and terms of the transaction. See also Brewer v. Uniroyal, Inc., 498 F.2d 973, 977 (6th Cir. 1974). Where, as here, there has been a direct relationship between the bank and purported customer, as well as privity of contract with the bank, it is reasonable to conclude that a customer relationship exists.

The reasons advanced in support of a narrow interpretation are not persuasive. There seems to be, however, an additional underlying assumption in the district court's conclusion which merits attention. It would appear that the court implicitly assumed that a bank could not have two customers in reference to one interrelated transaction. Since Standard clearly constituted a customer, it would follow that the Swerdloffs could not. There is in the Act or the policies underlying it, however, no basis for such a conclusion. Where, as here, the facts indicate that there are two or more potential customers, the claims of the parties must not be exclusively weighed against each other.

We hold that the owners of 100% Of the stock of a corporation who have been required individually to guarantee the corporation's loan must...