Opinion
No. 4:99CV085-EMB
June 26, 2000
OPINION
Defendants have moved for summary judgment as well as to dismiss this action on other grounds, and plaintiff has responded. The parties in the above entitled action have consented to trial and entry of final judgment by the United States Magistrate Judge under the provisions of 28 U.S.C. § 636(c), with any appeal to the Court of Appeals for the Fifth Circuit.
CLAIMS
Plaintiff brings this cause of action pursuant to 18 U.S.C. § 1965 (the Racketeer Influenced and Corrupt Organizations Act-RICO) alleging that the defendants engaged in a pattern of racketeering activity through their operation of various financial institutions using the mail and wire (telephone) services to defraud him out of his land and property. Plaintiff also alleges state law claims of breach of contract, interference with contractual relations between plaintiff and defendant Guaranty Agricultural Credit Corporation (GACC), bad faith, conspiracy, breach of fiduciary duty, and intentional or negligent infliction of emotional distress.
FACTS
The facts are that plaintiff applied for a $350,000.00 line of credit from defendant GACC on July 25, 1995, to operate the catfish ponds he had leased several months earlier from defendant Huey Townsend and his partner (Loan 2000). Townsend was president of Guaranty Bank and an officer of GACC. At the time this loan was executed plain-tiff's financial statement showed a net worth of $179,000.00. (Exhibit 2C to defendant's motion). This loan was guaranteed by the federal government, (acting through the Farm Service Agency [FSA], formerly Farmers Home Administration) (Exhibit 2B), pursuant to an Agricultural Loan Agreement (Exhibit 2A). The loan was also secured by collateral listed as fish inventory and equipment as required by FSA (Exhibit 2B).
Defendant Jerry Gillespie, a loan officer at the bank and an officer of GACC, in his deposition explained that although the loan did not mature until May 31, 1998, the line of credit was only for the current crop year (May 1, 1995 to May 1, 1996), and that prior to receiving advances for the second and third years, plaintiff would have to submit documentation of his income and expenses; a financial statement; a projected cash flow for the upcoming year; certification that he was in compliance with the terms of the loan agreement for the previous year; and get approval by FSA before any more cash could be advanced (Gillespie Depo., at 17, 20-21; Exhibit 2B to defendant's motion). Gillespie stated that plaintiff was fully aware of this process and it was clearly set forth in the "Conditional Commitment" form from FSA (Gillespie Depo., at 17; Exhibit 2B to defendant's motion).
Gillespie testified in his deposition that technically plaintiff was not in compliance with the loan agreement since it required that he get prior approval before making any significant additions to his farm (Gillespie Depo., at 13).
Prior to renewal for the crop year beginning in 1996 plaintiff submitted a financial statement showing a net worth of $1.2 million dollars (Exhibit 2D). In his report to GACC, Gillespie noted that plaintiff's improved financial situation was the result of inheriting a fingerling operation from his father and recommended that "we drop the guarantee, reduce the line of credit to $200,000 and secure the loan with hard collateral" which was listed as one 80 acre tract, one 160 acre tract, and equipment worth an estimated $135,150 (Exhibit 2E). This recommendation resulted in Loan 2001. Loan 2001 is fully documented and signed by the plaintiff clearly indicating the decrease in the line of credit; that real estate now secured the loan (Exhibit F); and that the full amount of the loan was not being disbursed, rather a substantial portion ($106,935.49) was to be paid on the previous Loan No. 2000 (Exhibit G). Plaintiff admits that when he realized that he was not going to get the full $200,000.00, some two weeks or so after he signed the papers, he said nothing to anyone at the bank (Bearden Depo., at 121-123).
When the second loan (No. 2001) came due on July 15, 1997, plaintiff requested an extension through January 5, 1998, and signed a release of "any and all actions, causes of action, suits, claims, counterclaims and demands of any kind whatsoever arising from or related to the loan," and ratified all the terms and conditions thereof. (Exhibit 2H). Although plaintiff remembers requesting the extension and signing the release, he testified that he probably did not read it before he signed it (Bearden Depo., at 121).
When plaintiff was unable to repay the loan on January 5, 1998, he approached the bank (plaintiff testified that he asked Mr. Townsend specifically and was referred to Mr. Gillespie) about restructuring his loan so that he could consolidate and lower his payments (Bearden Depo., at 129). This restructure resulted in Loan No. 2002 for the amount of $150,750.00, of which $100,000.00 was used to pay part of the previous loans with the remainder going to fund his catfish operations (Exhibit 2I).
Plaintiff also at this time signed Loan No. 3003 for $215,000.00, of which $100,000.00 went towards the previous loans and to repay Loan No. 3001, which plaintiff had borrowed to buy additional land known as the "Simpson" property (Exhibit 2K).
Payments became due on January 10, 1999 for Loan No. 3001 and on April 12, 2000 for Loan Nos. 1111 (for a truck), 2002 and 3003. No payments were made, and plaintiff's equipment, land and fish inventory were foreclosed upon in July 1999.
SUMMARY JUDGMENT STANDARD
Summary judgment should be entered only if ". . . there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Rule 56(c), Federal Rules of Civil Procedure. The party seeking summary judgment has the initial burden of demonstrating through the evidentiary materials that there is no actual dispute as to any material fact in the case. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On motion for summary judgment, "[t]he inquiry performed is the threshold inquiry of determining whether there is a need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
"[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, supra, at 322.
ISSUES
Defendants move for summary judgment on the grounds that plaintiff has failed to state a claim under RICO; that plaintiff has waived his claims by renewing the loans; that he released his claims when he signed a release at the time he requested an extension on the loans; and that any alleged oral promises about a line of credit are unenforceable.
RICO
The Racketeer Influenced and Corrupt Organizations Act (RICO) makes it "unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal . . . to use or invest, directly or indirectly, any part of such income or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce." 18 U.S.C. § 1962(a). The Act also makes it unlawful to conspire to engage in any acts prohibited by the Act. 18 U.S.C. § 1962(d).
The definition of "racketeering activity" encompasses a multitude of sins, including wire and mail fraud, of which plaintiff complains. 18 U.S.C. § 1961(1).
To support his claim under RICO, plaintiff claims that Townsend conspired with defendants Gillespie and McIntyre to force plaintiff into financial distress so as to obtain his land and property in foreclosure. Plaintiff also alleges that the defendants encouraged him to purchase and financed the purchase of the "Simpson" property with the promise of an increased line of credit which never materialized, further burdening plaintiff's financial situation.
Defendants contend first that plaintiff has failed to show that the defendants were an "enterprise" as defined by the Act or that they engaged in a "pattern of racketeering activity."
a) Enterprise
The definition of "enterprise" is: "any individual, partnership, corporation, association, or other legal entity, and a union or group of individuals associated in fact although not a legal entity." Association in fact enterprises must have an ongoing organization or be a continuing unit with a separate, ascertainable structure apart from the criminal activity being committed. Montesano v. Seafirst Commercial Corp., 818 f.2d 423 (5th Cir. 1987); Atkinson v. Anadarko Bank and Trust Co., 808 F.2d 438 (5th Cir. 1987). In Atkinson, a case cited by the defendants, the Fifth Circuit specifically held that bank officers are not separate from the bank itself when allegedly commiting racketeering activity in the course of their employment. Id., at 440-441.
Plaintiff admitted in his deposition that he had no knowledge of or evidence that the defendants ever even met to discuss him or his business (Bearden Depo., at 209-210).
Indeed, defendant Huey Townsend, president of Guaranty Bank Trust Company and an officer of GACC, in his deposition stated that he had no part in the loan processes for the plaintiff (Depo. at 6), and denied ever discussing the Simpson property with the plaintiff (Depo., at 9).
Defendant William H. McIntyre, vice-president at the Guaranty Bank and an officer of GACC, stated in his deposition that the only reason he processed the loan for the purchase of the Simpson property was because Gillespie was on a temporary leave of absence and that as soon as Gillespie returned, McIntyre had no further dealings with the plaintiff (McIntyre Depo., at 12, 19). McIntyre recalls that the Simpson property was in foreclosure and the plaintiff approached him about purchasing the property which was adjacent to plaintiff's property presumably after reading the foreclosure notice in the paper (McIntyre Depo., at 12). McIntyre denied suggesting the purchase to the plaintiff or otherwise initiating the transaction and also denied ever discussing or promising a line of credit that would be attendant to the purchase of the Simpson property (McIntyre Depo., at 14-15).
In his response to this argument plaintiff focuses on the land swap between Townsend, his partner Larry Solomon, and the plaintiff as evidence of an enterprise apparently grabbing hold of a statement Townsend made in his deposition that the land swap was indeed an action independent of the bank. However, even assuming that this constituted an enterprise, it was an association between Townsend and Solomon who is not a defendant in this action. There is no allegation that Gillespie and McIntyre were part of this land deal, except the vague allegation that Gillespie used this land swap, i.e. the increase of plaintiff's acreage, to have grounds to terminate plaintiff's federally guaranteed loan. However, Gillespie stated in his deposition that he would not even be the one to make the decision regarding the federal guarantee — it would be FSA (Gillespie Depo., at 28), and that FSA was really the deciding factor on whether or not GACC granted plaintiff a loan under this program (Gillespie Depo., at 10). Further, as plaintiff conceded in his deposition, the land he obtained from Townsend was land he was previously leasing (Bearden Depo., at 226). As Townsend explained in his deposition, the purchase of these ponds by the plaintiff was not the operative factor in changing the size of his operations since these were the original ponds plaintiff was operating when he first applied for the federally guaranteed loan in 1995 (Depo., at 15-16). Townsend testified that what changed plaintiff's operations was the purchase of the Simpson property, perhaps other ponds he purchased from Art Gary, or perhaps he began working ponds formerly leased by his father (Depo., at 16).
The short of this long and convoluted tale is that plaintiff deeded his interest in land located in Humphreys and Yazoo Counties to Townsend and Solomon, in exchange for the deed to certain catfish ponds that he had formerly leased from Townsend, with the agreement that third parties were in the wings to purchase plaintiff's land from Townsend thereby allowing plaintiff to avoid income taxes on the sale of the property (Bearden Depo., at 218-227).
Clearly, the actions of the defendants are unrelated and unconnected. Plaintiff has failed to show that defendants Townsend, Gillespie, and McIntyre were involved in any type organization, association or entity outside their jobs with the bank, and has therefore failed to establish this element of his RICO claim.
b) Pattern of Racketeering Activity
Plaintiff claims that the defendants conspired to place him in financial distress by denying his federally-guaranteed loan and replacing it with a loan secured by land and other property, and intentionally decreasing his loan amounts so that he had insufficient operating credit to run his business so as to result in foreclosure. Plaintiff claims specifically that the defendants induced him to buy the Simpson property and to swap land with Townsend knowing that it would result in his being "over-secured," and therefore ineligible for a federally-guaranteed loan. Plaintiff testified at his deposition that this "scam" is a regular way of doing business by the defendants, and they have "busted" several other catfish farmers such as Larry Cochran, R.B. Hoke, and Billy Joe Bufkin, by these same practices (Bearden Depo., at 213).
A "pattern" requires both that the acts are related to each other and have continuity. In re Burzynski, 989 F.2d 733, 741 (5th Cir. 1993). As the cases cited by the defendants establish, a pattern must be more than two predicate acts, there must be a specific threat of repetition, some showing that the activity complained of is a regular course of business for the defendants. Tel-Phonic Services, Inc. v. TBS Intern, Inc., 975 F.2d 1134 (5th Cir. 1992). A single scheme involving a single victim is an isolated incident, not a pattern of activity. Torwest DBC, Inc. v. Dick, 810 F.2d 925 (10th Cir. 1987). Although plaintiff alleged at his deposition that numerous other farmers had been defrauded by the defendants in a similar manner, not one affidavit has been submitted to support these allegations.
First, the court notes that the scheme described by the plaintiff hardly inures benefit to those alleged to have committed it. The end result is that the bank is out several thousand dollars. Such a scheme, if indeed it became a pattern, would in short order render the bank insolvent.
Second, the scheme which plaintiff only describes in a conclusory fashion falls apart under the facts. Specifically, plaintiff has not offered any evidence, i.e. documentation, that FSA denied his federally-guaranteed loan and according to Gillespie it would have been FSA that would make this decision. In fact, Gillespie testified that he decreased the amount for Loan 2001 because the plaintiff asked him to, and based on plaintiff's representation that he was only planning on farming around 100 acres, $200,000.00 was a typical line of credit for that size farm (Depo., at 34-35). Plaintiff does not deny that his operations changed before he applied for the second loan or that he was going to farm less acreage. Plaintiff also admitted that he did not complain to anyone about the amount when he realized it was for less than the earlier crop year (Bearden Depo., at 121-123). Plaintiff also admitted that he continued doing business with GACC long after he believed they were scamming him because he thought he had nowhere else to go, although he fails to explain the basis of this belief, i.e. that he had applied for other loans or approached other banks and been turned down; he just had always done business with this institution (Bearden Depo., at 155).
Plaintiff's alleged scheme also crumbles under his own testimony that the reason he was told he no longer qualified for the federally-guaranteed loan was because he was "over-secured." Although Gillespie and Townsend both deny ever telling plaintiff he was not qualified for the loan, Townsend also commented that, "I've never heard of an over-secured line [of credit]." (Depo., at 7). Indeed, neither has the court, and plaintiff has not offered any evidence by way of affidavit or otherwise that would support his story that a lender would rather have less security to extend more credit than vice versa.
Although the court is not to make credibility determinations on a motion for summary judgment, Anderson v. Liberty Lobby, Inc., supra, at 255, a dispute about a material fact must be "genuine," or in other words the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id, at 248. There is no such issue unless the evidence sufficiently supports the non-moving party's version of the facts for a jury to return a verdict in the non-moving party's favor. Id., at 249. Under the provisions of Rule 56(e), Federal Rules of Civil Procedure, a party against whom a motion for summary judgment is made may not merely rest upon his pleadings, but must, by affidavit, or other materials as provided in Rule 56, inform the court of specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, supra, at 324.
The court does not find that the plaintiff has sufficiently carried his burden of showing that his version of the facts involving the alleged scheme against him could possibly be decided in his favor, and the court therefore finds that the defendants should be granted summary judgment on plaintiff's RICO claims.
STATE LAW CLAIMS
Plaintiff alleges that GACC has breached its contract with him, but fails to explain how his defaulting on his loans constitutes their breach. Further, plaintiff has failed to allege sufficient facts to support his claim that the individual defendants interfered with his contractual relations or breached a fiduciary duty. Having found no breach of contract, plaintiff's claim of bad faith must fail and specifically finding no conspiracy, this claim, too, must fail. The court further finds that any emotional distress incurred by the plain-tiff is a result of his own misdeeds likely brought on by the realization that he has squandered hundreds of thousands of dollars and lost his land and inheritance, and is likely to lose more.
The court herein grants defendants summary judgment on plaintiff's state law claims, and they are herein dismissed also.
COUNTERCLAIMS
Defendants also move for summary judgment on their counterclaims contending that plaintiff admits he has defaulted on his loans, and the amounts owing on these notes can be determined from the instruments in the record. The court agrees and does herein grant summary judgment on defendant's counterclaims, but finds that based on issues raised in defendants' motion to dismiss, as discussed infra, no final judgment should be entered on the amount of plaintiff's indebtedness until defendants have added the claims of fraud and conversion and developed these claims in discovery.
MOTION TO DISMISS
Defendants have simultaneously moved to dismiss plaintiff's claims as a sanction for his failure to properly account for the collateral as directed by the court; for failing to appear at the hearing on his motion for injunctive relief; and for waiting until his deposition to admit that he had sold much of the collateral out of trust. There is considerable evidence to support plaintiff's misappropriation of his collateral and his dishonesty about it.
At his deposition, plaintiff candidly admitted that he sold a number of pieces of equipment, trailers, tractors and fish and kept the proceeds of these sales for himself knowing these items were the bank's collateral (Depo. at 231). These acts and more were corroborated by Andrew Chapman who worked for the plaintiff and hauled some of the fish plaintiff sold to others (Depo., at 9-10). Chapman also knew of people who had seined the catfish ponds at night and hauled the fish to a fish plant in Marshall, Texas because local plants had refused to purchase plaintiff's fish (Depo., at 13, 24).
Greg Burton, owner and operator of Cole Lake Fish Farms, testified at his deposition that he bought $10,000.00 in fingerlings from plaintiff in May 1997; $10,000.00 in August 1997; and ledger entries from Burton's business indicate that he also paid plaintiff $4,490.00 in January 1999; $5245.00 in February 1999; $3,000.00 in March 1999; and $4,100.00 in May 1999 (Depo., at 9). He also testified that during the time of these purchases he saw all of plaintiff's equipment on the ponds, but on his last visit saw none of it there (Depo., at 24).
Clark Cato of Cato Fish Farms testified that he bought $6,426.00 worth of fingerlings from the plaintiff in September 1997 (Depo., at 4).
David Sanders testified that he bought fish from the plaintiff in 1995 or 1996, but did not have any records to support his testimony (Depo., at 6).
Don Long testified that he sold a large number of fish for the plaintiff and wrote checks to him for over $120,000.00 from January to May 1997 (Depo., at 56).
The court finds that these issues should be developed as defendants request in their alternative request for relief, and in light of the court's ruling on the motion for summary judgment, the court herein denies the motion to dismiss. The court will, however, grant defendant's request for alternative relief, that is, to amend the counter-claim to allege fraud and conversion and to reopen discovery for the purpose of exploring these allegations.
A separate order in accordance with this opinion shall issue this same date and shall set forth the manner in which the remainder of these proceedings shall be accomplished.
ORDER
In accordance with an opinion entered this day, the court herein orders:
1. That Defendant's Motion for Summary Judgment be, and it is hereby GRANTED, and all of plaintiff's claims against the defendants are hereby dismissed with prejudice.
2. That summary judgment be, and it is hereby, GRANTED on defendants' counter-claims, but the court will reserve entry of a final judgment as to the amount of plaintiff's indebtedness on the loans at issue until all of defendants' claims against him have been fully developed and resolved.
3. That defendants' Motion to Dismiss be, and it is hereby, sustained in the alternative, that is, to amend the counter-claim to allege fraud and conversion and to reopen discovery for the purpose of exploring these allegations. The motion is denied in all other respects.
4. That the trial of this matter is herein continued until further order of the court.
5. Defendants shall within twenty days of this date serve and file an amended answer adding their claims of fraud and conversion. Discovery is extended through September 25, 2000 for the limited purpose of developing defendants' amended counter-claims.
All memoranda, depositions, affidavits and other matters considered by the court in ruling on the motion for summary judgment are hereby incorporated and made a part of the record in this cause.