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Wankel v. Southern Illinois Bancorp

August 21, 2007


The opinion of the court was delivered by: Reagan, District Judge


A. Factual and Procedural History

On August 9, 2006, Plaintiffs Mark and Debra Wankel filed suit in this Court against several defendants: Regions Bank, as successor to Union Planters Bank, N.A. ("Union Planters"), Mitchell Ferree, an employee of Union Planters, Southern Illinois Bancorp, Inc., as parent holding company for First National Bank of Carmi ("First Bank"), and Alvin Fritschle, Nikki Roser, Donna Hodgson, Ron Absher, James T. Gaines, James Zieren and Gary Finch, as directors, officers and/or employees of First Bank.

In Counts One and Two of Plaintiffs' four-count complaint (Doc. 2, "Complaint"), Plaintiffs claim that Defendants collectively violated three separate provisions of the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO"), 18 U.S.C. § 1961 et seq. In Counts Three and Four, Plaintiffs assert two pendant state law claims for common law fraud (see Complaint, pp. 18-19).

The crux of Plaintiffs' cause of action is Plaintiff Mark Wankel's dealings with one Kevin Williams ("Williams") and two specific loan transactions with Union Planters and First Bank. Specifically, Plaintiffs allege that Williams, a certified public accountant, owned and operated American Auto Centers, Inc. ("American Auto"), a retail used automotive sales business in Illinois (Complaint, ¶ 16). Williams opened checking accounts for American Auto with both First Bank and Union Planters. Thereafter, "from an indeterminate time in September 2003 until March 10, 2004," Williams engaged in a check kiting scheme between American Auto's accounts at First Bank and Union Planters (Complaint, ¶ 20). Williams' check kiting activity resulted in substantial overdrafts in both accounts (Complaint, ¶¶ 20-26).

Rather than revealing his check kiting scheme and the consequences thereof, Williams allegedly informed Mark Wankel that an employee of American Auto had embezzled money from its bank accounts and that the overdrafts had to be covered (Complaint, ¶ 28). Williams further assured Mark Wankel that the overdrafts were "no big deal" and assured him that there was "plenty of equity" in the American Auto account to cover those overdrafts (Complaint, ¶ 28a-b). These assurances by Williams were false and allegedly made with the intent that Mark Wankel would rely on them (Complaint, ¶ 28c-e).

Thereafter, Plaintiffs allege, they were defrauded through the combined efforts of the defendants into guaranteeing and subsequently purchasing a $360,726.28 loan from First Bank to Williams to cover the overdraft in American Auto's bank account (Complaint, ¶¶ 36, 41, 43). First Bank and its employees allegedly failed to inform Plaintiffs of Williams' check kiting scheme and financial difficulties prior to Plaintiffs' purchase of the loan and in violation of the Loan Participation Agreement (Complaint, ¶¶ 43-50).

In addition, Plaintiffs also received a $400,000 loan from Union Planters. Plaintiffs assert that Union Planters and its employees failed to disclose that the loan proceeds would be used to cover the deficiency caused by Williams' check kiting, but instead represented that the proceeds would be used as an investment into Williams' business (Complaint, ¶ 33a). Notably, although Plaintiffs admit to executing a "Hold Harmless Agreement" in connection with the Union Planters loan, Plaintiffs allege that Defendants fraudulently induced them into entering that agreement (Complaint, ¶ 33b).

As a "direct result" of Defendants' alleged scheme to defraud Plaintiffs, Plaintiffs assert, they have been damaged "in the approximate amount of $1,357,071.28, plus interest charged, accrued, and or paid" (Complaint, ¶ 63).

Now before the Court is Defendant Regions Bank's motion to dismiss pursuant to FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6) (Doc. 29) and memorandum in support (Doc. 40).

Therein, Regions Bank argues that Counts One and Two of Plaintiffs' Complaint should be dismissed as a matter of law for two main reasons: (1) the allegations are insufficient to state a claim under any section of RICO and lack particularity required under FEDERAL RULE OF CIVIL PROCEDURE 9(b); and (2) Plaintiffs, who are not financial institutions, lack standing to assert bank fraud as a predicate act under RICO.

B. Analysis

FEDERALRULE OF CIVIL PROCEDURE 12(b)(6) governs motions to dismiss for failure to state a claim upon which relief can be granted. When considering a motion to dismiss for failure to state a claim, the Court accepts the plaintiff's allegations as true, and construes all inferences in favor of the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Thompson v. Ill. Dep't of Prof. Regulation, 300 F.3d 750, 753 (7th Cir. 2002). Dismissal for failure to state a claim is warranted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Mattice v. Memorial Hosp. Of South Bend, Inc., 249 F.3d 682, 684 (7th Cir. 2001), citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Accord Hishon, 467 U.S. 69, 73 (Rule 12(b)(6) dismissal is appropriate only if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations").

Nonetheless, in the RICO context, allegations of fraudulent conduct must specify, with particularity, the circumstances of the alleged fraud. Slaney v. The Intern. Amateur Athletic Fed'n, 244 F.3d 580, 597 (7th Cir. 2001); Haroco, Inc. v. Am. Nat. Bank and Trust Co., 747 F.2d 384, 405 (7th Cir. 1984). To meet this standard, a plaintiff must describe predicate acts of fraud with specificity and the "time, place, and content of the alleged false representations, the method by which the misrepresentations were communicated, and the identities of the parties to those misrepresentations." Slaney, 244 F.3d at 597.

In Count One, Plaintiffs allege that Defendants violated RICO. RICO makes it unlawful for "any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." 18 U.S.C. § 1962(c). To state a claim for relief under this section, Plaintiffs must show (1) conduct affecting interstate or foreign commerce (2) of an enterprise (3) through a pattern (4) of racketeering activity. Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 644 (7th Cir. 1995). In Count Two, Plaintiffs allege that Defendants violated the RICO conspiracy law.

To state a claim for RICO conspiracy, the claimant must allege an agreement to violate RICO, and not the violations themselves. "[T]he touchstone of liability under § 1962(d) is an agreement to participate in endeavors which, if completed, would constitute a violation of the substantive statute." Slaney, 244 F.3d at 588. In Count Two, in describing the endeavors in which the co-conspirators allegedly agreed to participate, Plaintiffs simply reincorporate by reference the allegations regarding the RICO violation described in Count One of their complaint (see Complaint, ¶¶ 70-73). Accordingly, if the acts described in Count One would not constitute a violation of RICO, then it follows that there can be no violation of RICO conspiracy for the alleged agreement.

In its motion to dismiss (Doc. 29), Regions Bank makes several arguments for dismissal. The Court first analyzes Region Bank's assertion that Plaintiffs have failed to adequately plead a pattern of racketeering activity under RICO.

Whether Plaintiffs Have Plead Racketeering Activity Under RICO

A pattern of racketeering activity consists of at least two predicate acts of racketeering-- including mail fraud under 18 U.S.C. § 1341, bank fraud under 18 U.S.C. § 1344 and wire fraud under 18 U.S.C. § 1343 -- committed within a ten-year period. 18 U.S.C. § 1961(5). Whether a pattern of racketeering activity exists is a fact-specific inquiry which hinges on, among other things: "(1) the number and variety of the predicate acts and the length of time over which they were committed; (2) the number of victims; (3) the presence of separate schemes; and (4) the occurrence of distinct injuries."Gaganv. American Cablevision, Inc., 77 F.3d 951, 962-63 (7th Cir. 1996). These considerations, termed the Morgan factors after the Seventh Circuit's decision in Morgan v. Bank of Waukegan, 804 F.2d 970 (7th Cir.1986), are now analyzed "with an eye towards achieving a natural and common sense result." 420 E. Ohio Ltd. P-Ship v. Cocose, 980 F.2d 1122, 1124 (7th Cir. 1992) (internal citation and quotations omitted). The Morgan factors are used to analyze whether a particular factual situation meets the "continuity plus relationship" test set forth by the Supreme Court in Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985). Under this test, "the predicate acts must be related to one another (the relationship prong) and pose a threat of continued criminal activity (the continuity prong)." Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1022 (7th Cir. 1992) (citing H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239) (1989).

The Seventh Circuit, along with its sister circuits, has stressed a common sense approach to the pattern requirement in a RICO action. See, e.g., U.S. Textiles, Inc. v. Anheuser-Busch Cos., Inc., 911 F.2d 1261, 1267 (7th Cir. 1990); 420 E. Ohio Ltd. P-Ship, 980 F.2d at 1124. To this end, courts must remember that Congress "intended to limit RICO to those cases in which racketeering acts are committed in a manner characterizing the defendant as a person who regularly commits such crimes." Lipin Enters. Inc. v. Lee, 803 F.2d 322, 324 (7th Cir. 1986). Thus, there "must be some indication of a threat of continuing activity by the defendants, not just one instance of fraud with a single victim." Id. (internal quotation and ...

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