UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 94-30126
IN RE: TAXABLE MUNICIPAL BOND SECURITIES LITIGATION.
LARRY ANDERSON,
Plaintiff-Appellant,
VERSUS
KUTAK, ROCK AND CAMPBELL, ET AL.,
Defendants,
KUTAK, ROCK AND CAMPBELL, ET AL.,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Louisiana
(April 21, 1995)
Before POLITZ, Chief Judge, GARWOOD and BENAVIDES, Circuit
Judges.
BENAVIDES, Circuit Judge:
Plaintiff-Appellant Larry Anderson ("Anderson") appeals the
dismissal of his class action suit based on alleged violations of
Racketeer Influenced and Corrupt Organizations Act ("RICO"),
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Title IX of the Organized Crime Control Act of 1970, Pub.L. No.
91-452, 84 Stat. 922 (codified at 18 U.S.C. § 1961 et seq.).
Finding that Anderson has no standing to bring the RICO claims,
we affirm the dismissal of Anderson's suit.
FACTS AND PROCEDURAL HISTORY
MDL 863 (The Suit by Bondholders)
This appeal requires an understanding of the pertinent facts
and procedural history of a previously filed class action multi-
district litigation ("MDL") suit before the District Court for the
Eastern District of Louisiana. Accordingly, before we chronicle
the history of appellant Anderson's RICO claim, we review the facts
and procedural history of the previous claim in MDL 863.
In 1983, the Nebraska state legislature created the Nebraska
Investment Authority ("NIFA") to encourage agricultural and other
economic development. Neb. Rev. Stat. §§ 58-202, 58-207. On
October 27, 1986, NIFA enacted a resolution authorizing the
issuance of two series of taxable municipal bonds collectively
worth $200,000,000 ("NIFA Bonds"). On November 13, 1986, NIFA
issued the NIFA Bonds. According to the offering materials, the
bond proceeds would be used to establish a fund for the purchase of
agricultural loans from banks in Nebraska.
Drexel Burnham Lambert & Co. ("Drexel") led an underwriting
syndicate that underwrote and initially sold the NIFA Bonds to the
public. After the underwriters' purchase of the bonds, the
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indenture trustee, defendant Norwest Bank, Minneapolis, N.A.
("Norwest"), used the proceeds to purchase Guaranteed Investment
Contracts ("GICs") from Executive Life Insurance Company ("ELIC").
ELIC in turn invested the proceeds from the sale of the GICs in
junk bonds, even though the bond offering materials did not
disclose such an investment. At the time the NIFA Bonds were
issued, Standard & Poor's assessed ELIC a claims paying rate of
AAA. After the collapse of the junk bond market in early 1989,
Standard & Poor's downgraded ELIC's rating, and the value of the
bonds declined. In April 1991, the California Insurance
Commissioner placed ELIC into conservatorship and stopped interest
payments under the GICs. The NIFA Bonds subsequently defaulted.
The NIFA Bond issue was similar in structure to seven other
taxable municipal bond issues that came on the market between July
and November 1986 for purposes of establishing funds for the
purchase of housing or agricultural loans. The proceeds from each
of these bond issues were placed in ELIC GICs. Drexel led the
underwriting syndicates in six of these bond issues. The First
Boston Corporation led the underwriting syndicate in the seventh
bond issue. Otherwise, the issuers, indenture trustees and
underwriting groups for each of the bond issues varied. Together,
the total amount raised by these eight bond offerings was
$1,850,000,000.
As the bonds from these eight issuances declined in value,
litigation ensued. As early as April 1990, before the
conservatorship of ELIC, holders of the NIFA Bonds and the seven
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other municipal bonds filed class action lawsuits alleging
securities fraud and RICO violations. On November 29, 1990, the
Judicial Panel on Multi-district Litigation ("JPMDL"), pursuant to
28 U.S.C. § 1407, transferred twelve putative class action
bondholder suits pending in seven federal districts to the Eastern
District of Louisiana for consolidated pretrial proceedings under
the caption In Re Taxable Municipal Bond Securities Litigation, MDL
863 ("MDL 863").
Pursuant to the district court's pretrial orders, the
plaintiff bondholders in MDL 863 filed a separate class action
complaint asserting the RICO claims premised on an alleged scheme
to trick investors into thinking they were buying safe, low-risk
municipal bonds when they were actually buying junk bonds. The
plaintiff bondholders in MDL 863 alleged that Drexel, ELIC and
defendant Kutak, Rock & Campbell ("Kutak"), NIFA's counsel, devised
a plan to use the issuance of municipal bonds as a scheme to create
capital for ELIC. According to this theory, the defendants
portrayed the GICs as a credit enhancement, but in reality, the
GICs were a means of funneling the proceeds of the bond offerings
into ELIC for the life of the bonds. In order to ensure that the
bond proceeds remained under ELIC's control, the defendants
allegedly sought to make it virtually impossible to borrow from the
loan fund established by the bond proceeds, thereby preventing any
significant call on the funds invested with ELIC.
To further this goal, the plaintiffs maintained, the
defendants found friendly entities to act as administrators of the
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loan programs. For the NIFA offering, Norwest, the indenture
trustee, allegedly agreed to act as administrator of the NIFA loan
program with knowledge that there would likely be no loans. Drexel
recruited municipalities and agencies with the legal authority to
float bond offerings. After recruiting a municipal agency, the
group would enlist other players such as the members of the
underwriting syndicate and a friendly trustee (Norwest for the NIFA
Bonds).
Based on these facts alleged by the MDL 863 plaintiffs, the
RICO complaint alleged that the defendants participated in the
affairs of a RICO enterprise in violation of 18 U.S.C. § 1962(c)
and a conspiracy under 18 U.S.C. § 1962(d) to violate § 1962(c).
The MDL 863 plaintiffs asserted alternative RICO enterprise
theories. The complaint first alleged that the RICO defendants
formed an association-in-fact to issue taxable municipal bonds for
the fraudulent purpose of investing the proceeds in the junk bond
market. Alternatively, the MDL 863 plaintiffs alleged that each of
the municipal issuers constituted a separate RICO enterprise. The
defendants in MDL 863 moved to dismiss the plaintiff bondholders'
RICO class action complaint. In a May 18, 1992 order, the district
court rejected the plaintiffs' association-in-fact theory under §
1962(c). The district court, however, permitted the bondholder
plaintiffs to proceed with discovery on their alternative theory
that each municipal issuer constituted a separate RICO enterprise
and on their RICO conspiracy theory.
On August 27, 1993, the plaintiff bondholders, including the
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purchasers of NIFA Bonds except for Washington National Insurance
Company and Washington National Insurance Company of New York
(collectively "WNIC"), agreed to voluntarily dismiss the RICO class
action complaint in light of the Supreme Court's decision in Reves
v. Ernst & Young, 113 S. Ct. 1163 (1993). WNIC, however, refused
to dismiss its RICO claims based on its purchase of NIFA Bonds.
The defendants moved for summary judgment on WNIC's RICO claims.
WNIC opposed the defendants' motion and also sought to file an
amended RICO complaint. In a December 13, 1993 order, the district
court granted defendants' motion for summary judgment, dismissed
WNIC's RICO claims and refused to permit WNIC to file its proposed
amended complaint.
Anderson's RICO Suit (The Farmers' and Ranchers' Claim)
On July 6, 1993, in the midst of the MDL 863 litigation and
after the district court rejected the bondholders' association-in-
fact enterprise theory, Anderson, the plaintiff in the instant
case, filed a three-count RICO complaint in federal district court
in Nebraska, asserting that the NIFA Bonds were issued in 1986 as
part of a fraudulent scheme in violation of federal law. Anderson
is a Nebraska farmer who never purchased or owned NIFA Bonds. He
filed this action individually and on behalf of other small
Nebraska farmers and ranchers alleged to be unable to obtain
agricultural loans because of the defendants' actions. On November
17, 1993, Anderson amended his complaint as of right. On December
2, 1993, the JPMDL transferred Anderson's RICO claims against the
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defendants to the Eastern District of Louisiana as a tag-along
action because the claims involved common questions of fact with
the actions in MDL 863.
The district court concluded that Anderson's complaint and the
MDL 863 RICO complaint were identical in all relevant respects.
The only distinction found by the district court was in the class
of plaintiffs purportedly represented: the MDL 863 plaintiffs were
the bond purchasers, whereas the Anderson plaintiffs were Nebraska
farmers allegedly unable to obtain loans. The first two counts of
Anderson's amended complaint allege violations of 18 U.S.C. §
1962(c) based on alternative allegations of a RICO enterprise. The
first count asserts an association-in-fact enterprise theory, and
the second count alleges that NIFA itself constitutes a RICO
enterprise. The third count alleges that, under either RICO
enterprise theory, the defendants conspired in violation of §
1962(d).
In a February 2, 1994 order in connection with its dismissal
of the WNIC action, the district court considered the fate of the
Anderson tag-along action, even though the defendants had not
answered or moved to dismiss the Anderson complaint. The district
court recited the Pretrial Order governing tag-along actions
consolidated with MDL 863:
In each pending case and in the subsequently filed, removed,
or transferred cases, the motions which the court has already
considered in one or more of the pending cases shall be deemed
filed on behalf of each party with interests similar to the
movant. This provision does not preclude a renewal or re-
argument of such motions based on particular circumstances of
an individual case.
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The district court found that no special circumstances warranted
reargument and reiterated its finding that the Anderson allegations
were identical to the allegations in the MDL 863 RICO complaint,
which was dismissed on summary judgment. Therefore, in accordance
with the Pretrial Order, the district court concluded that the
"dismissal of the Anderson action is proper for the same reasons
dismissal of the RICO claims in MDL 863 was proper."
Anderson appeals the district court's ruling.
STANDING TO PRESENT A RICO CLAIM
Although the district court did not address the standing issue
raised by appellees, we may determine this appeal on this issue
because "[s]tanding represents a jurisdictional requirement which
remains open to review at all stages of the litigation." National
Org. for Women, Inc. v. Scheidler, 114 S. Ct. 798, 802 (1994).
The standing provision of civil RICO provides that "[a]ny
person injured in his business or property by reason of a violation
of section 1962 of this chapter may sue therefor . . . and shall
recover threefold the damages he sustains." 18 U.S.C. § 1964(c).
Anderson claims that his injury is the lost opportunity to obtain
an agricultural loan from the proceeds of the NIFA Bonds. Anderson
contends that the farmers and ranchers had a legal entitlement to
participate in a nonfraudulent loan program, as the Nebraska
legislature created and authorized NIFA to ameliorate the farmers'
economic difficulties. We disagree and find that Anderson has not
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fulfilled the standing requirements at two separate levels.
I.
ELIGIBILITY FOR THE NIFA LOANS
Anderson is not representative of the class. Because he has
not shown how he could qualify under any NIFA loan program,
Anderson cannot show how he has become entitled to its benefits.
Anderson thereby does not share the same interests and has not
suffered the same harms as the class members he contends were
injured by the scheme.
Although Anderson claims that the restrictions imposed by the
eligibility requirements were part of the fraudulent scheme,
Anderson has not shown how he qualifies under the requirements
imposed by the Nebraska legislature. In other words, even if there
had been no fraud and the NIFA Bond proceeds were used properly to
fund loans, Anderson has not shown his eligibility to receive the
loans. Under the Nebraska statute governing the NIFA Bond loan
program, "only those borrowers who are unable to obtain credit from
the conventional farm credit markets or other sources will receive
loans." Neb. Rev. Stat. § 58-244(10). Nowhere is it alleged that
Anderson was unable to obtain credit from other sources. In fact,
at the time of suit, Anderson had already obtained credit from
other sources, thereby making him ineligible for the loans.
Further, paragraphs 111 and 115 of Anderson's amended complaint
suggest that several putative class members have obtained credit
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from other agricultural lenders. Thus, they are ineligible to
participate in the NIFA Bond loan program and cannot claim injuries
stemming from not being able to obtain loans from the proceeds of
the NIFA Bonds.
Anderson responds by arguing that, although some of the class
members are not eligible for the loans, the class as a whole is
entitled to the loans. Anderson, however, has not presented any
case law supporting his argument. Further, it is well-established
that
[t]o have standing to sue as a class representative it is
essential that a plaintiff must be a part of that class, that
is, he must possess the same interest and suffer the same
injury shared by all members of the class he represents.
Schlesinger v. Reservists Comm. to Stop the War, 94 S. Ct. 2925,
2930 (1974). Because Anderson has not demonstrated how he cannot
obtain credit from other agricultural lenders, Anderson cannot
prove his eligibility for the NIFA Bonds and does not have standing
to bring suit in this action.
II.
NO DAMAGES - NO INJURY
In the alternative, even if Anderson has properly alleged his
eligibility for the NIFA Bonds and is the proper representative of
the class, Anderson and the entire class of farmers and ranchers
have not suffered any damages. They have not been "injured" as a
result of the RICO violation, a necessity for standing under RICO.
Anderson has not shown how the RICO scheme has injured farmers
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and ranchers. He has not shown that the farmers and ranchers
applied for the NIFA Bond loans and were refused. Nonetheless,
Anderson argues that the plaintiffs have suffered damages in the
amount of the difference between the low interest rate of the NIFA
bond loans and the higher interest rates now being paid by the
farmers and ranchers on other credit. However, the very fact that
such farmers and ranchers are paying higher interest rates on other
loans makes them ineligible for the NIFA Bond loans, as such
farmers and ranchers have necessarily been able to obtain other
credit and are ineligible for the NIFA loans. They have suffered
no injury from not receiving what they were ineligible to receive.
Anderson's contention that he has sustained a lost
"opportunity" to obtain a NIFA loan by itself is too speculative to
constitute an injury. We are not persuaded by Anderson's argument
of a RICO injury based on his reliance on Standardbred Owners Ass'n
v. Roosevelt Raceway Assocs., L.P., 985 F.2d 102 (2d Cir. 1993).
In Standardbred, the defendant purchased a horse racing facility
with financing from bonds issued by a municipality, id. at 103. In
its application for financing, the defendant stated that it
intended to continue racing operations at the facility. Id. The
defendant also gave assurances to the plaintiffs that racing would
continue. Id. at 103-04. The defendant, however, discontinued
racing on the property. Id. at 104. The court held that the
plaintiffs had standing to bring a RICO action, as "in the
fraudulently induced belief that racing would continue, plaintiffs
purchased, relocated and reconstructed capital equipment for use at
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the track, and designed their purchases and training of horses with
the intent to race them at the track." Id. at 104-05. In
contrast, there is no allegation in the instant case that the
farmers and ranchers acted in any way in reliance upon a
representation by the defendants that the bond proceeds would be
used to finance low interest agricultural loans.
Anderson also contends that the plaintiffs have a legal
entitlement to the benefits of the NIFA Bond proceeds because the
Nebraska legislature authorized the creation of NIFA to benefit the
plaintiffs. In support of his proposition, Anderson cites Jackson
Dist. Library v. Jackson County #1, 380 N.W.2d 112 (Mich. Ct. App.
1985), in which a library was allowed to sue for tax revenues that
voters had specifically approved for the library, id. at 113-14.
Jackson did not concern a RICO action or damages under RICO, but
the question of whether the library was an "eligible authority"
under Michigan law and thus entitled by state statute to a share of
the tax revenues. The case is clearly not on point. Anderson also
cites AAMCO Transmissions, Inc. v. Marino, Nos. 88-5522, 88-6197,
1992 WL 38120 (E.D. Pa. Feb. 20, 1992), which held that lost
profits were recoverable under RICO, id. at *5-*6. Here, however,
Anderson has not alleged lost profits. Rather, he only alleges a
lost opportunity to borrow at a low interest rate.
Even if Anderson was eligible and had shown how the
opportunity to borrow at a low interest rate would have benefited
him, Anderson's claimed damages would have required extensive
speculation and would not simply entail a calculation of present,
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actual damages. Such speculative damages are not compensable under
RICO, Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 24 (2d
Cir. 1990) (holding that "injury in the form of lost business
commissions . . . is too speculative to confer standing, because
Hecht only alleges that he would have lost commissions in the
future, and not that he has lost any yet"), and the legal
entitlement claim that Anderson brings is precisely the type of
"intangible property interest" that RICO does not protect, Steele
v. Hospital Corp. of Am., 36 F.3d 69, 70 (9th Cir. 1994) (holding
that, for RICO standing, the plaintiffs must prove a "concrete
financial loss," an actual loss "of their own money," and "not mere
`injury to a valuable intangible property interest'"). Anderson
has not alleged that the plaintiffs have ever lost any money as a
result of the RICO scheme. Oscar v. University Students Co-op.
Ass'n, 965 F.2d 783, 786 (9th Cir.), cert. denied, 113 S.Ct. 655
(1992) and 113 S.Ct. 656 (1992), (holding that the plaintiff had
not alleged any financial loss necessary for RICO standing because
"[t]he only injury she has alleged is a `decrease in the value of
her property,'" and not "any out-of-pocket expenditures as a direct
or indirect result of the" RICO scheme).
At best, Anderson's suit shows only a lost opportunity to
obtain a NIFA loan. Such lost opportunity by itself does not
constitute an injury that confers standing to bring a RICO cause of
action. Likewise, because the alleged injury is speculative and
does not show a conclusive financial loss, we hold that Anderson's
RICO suit fails for lack of standing.
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CONCLUSION
Because Anderson and the Nebraska farmers and ranchers
described in Anderson's class action suit have no standing to bring
the instant RICO action, we AFFIRM the district court's action in
dismissing Anderson's claims.
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