RICO — Shareholder and Guarantor Lack Standing to Sue for Injuries Derivative of Corporation’s — Mareva-Like Injunction Potentially OK under State Law — Assignment of Claims Must Antedate Inception of Suit to Confer Standing

Niemi v. Lasshofer, 2013 U.S. App. LEXIS 18589 (10th Cir. Sept. 6, 2013):

An unconventional real estate financing scheme presents us with some unconventional legal questions. Questions ranging from whether an Austrian financier should be denied access to the American legal system because he failed to comply with an order freezing his assets worldwide -- to whether the district court had the power to issue such a far-flying order in the first place.

Our case starts in Breckenridge and lean economic times. John Niemi and his business partners set out to build a large luxury ski condominium complex in two phases, working through a set of companies controlled by Mesatex, LLC. But traditional financing proved hard to find: after completing the first phase of development they found no bank willing to loan the $220 million needed to finish the project. So they began casting about for alternative sources.

They found a shady one in Michael Burgess. A Florida businessman, Mr. Burgess claimed to represent a European investor, Erwin Lasshofer, with an easy $250 million at hand. All Mesatex had to do to secure a loan was to pay a $180,000 commitment fee and provide another $2 million as a collateral deposit. This Mesatex did, but the promised loan never materialized. Where the $2.18 million wound up is anyone's guess, but for his part in the scheme Mr. Burgess eventually found himself in federal prison serving time for fraud and money laundering.

Of course, Mr. Burgess's sentence did little to satisfy Mesatex and its investors. They wanted their money back, and damages too. So they brought this lawsuit alleging that the lost loan wrecked Mesatex's business, caused it millions in lost profits, and sent its properties into foreclosure. But for whatever reason, neither Mesatex nor any of its subsidiaries -- the only parties to the loan arrangements with Mr. Burgess -- was included as a party to this lawsuit. Instead, the suit named only Mr. Niemi, Robert Naegele, and Jesper Parnevik -- Mesatex's investors -- as plaintiffs. A tactical decision with consequences that will become apparent soon enough.

As defendants Mr. Niemi and his fellow investors named not just Mr. Burgess and Mr. Lasshofer. Thinking here about the relevant companies, the plaintiffs sued as well the Innovatis Group, a set of foreign companies associated with Mr. Lasshofer. Proceeding under (among other laws) the Racketeer Influenced and Corrupt Organizations Act and the Colorado Organized Crime Control Act, Mr. Niemi and the other plaintiffs demanded as much as $150 million in relief. See 18 U.S.C. §§ 1961-1968; Colo. Rev. Stat. §§ 18-17-101 to 109.

Soon enough Mr. Burgess and Mr. Lasshofer began the finger pointing. Mr. Burgess insisted he was just following Mr. Lasshofer's instructions. Mr. Lasshofer rejoined that he found himself unwittingly in business with a con man. Unpersuaded that Mr. Lasshofer was quite the innocent he claimed to be, the district court in June 2012 granted the plaintiffs' motion for a preliminary injunction, effectively freezing the worldwide assets of Mr. Lasshofer and the corporate defendants and ordering them to deposit $2.18 million in escrow pending a final judgment. It is this interlocutory order Mr. Lasshofer and the corporate defendants now ask us to undo. See 28 U.S.C. § 1292(a)(1).

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Mr. Lasshofer and the corporate defendants argue that the preliminary injunction must be overturned because of Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc. There the Supreme Court held that, in cases seeking money judgments, federal district courts do not possess the inherent equitable power to issue preliminary injunctions preventing the transfer of assets in which the plaintiffs claim no pre-existing lien or equitable interest. 527 U.S. 308, 310, 333 (1999). Yet that, the defendants argue, is exactly what happened here: in the June 2012 preliminary injunction the district court purported to freeze all of their assets worldwide, whether or not connected in any way to the allegations in this case and no matter if they greatly exceeded the amount of damages sought. Because the district court overstepped the bounds of its inherent authority, the defendants say, we must reverse.

The defendants' argument here, like both of the plaintiffs' arguments before it, overstates its case. No doubt, Grupo Mexicano held that district courts lack inherent authority to issue preliminary injunctions like the one here, just as the defendants suggest. But the Supreme Court in Grupo Mexicano also acknowledged that Congress can and sometimes has added to the inherent authority of courts by statute, allowing courts to enter preliminary injunctions freezing assets on a national or international basis. Id. at 325-26. And the Court expressly left open the question whether a district court sitting in diversity can issue an injunction along these same lines when state law permits. Id. at 318 n.3. That last possibility is notable here because it's the one the district court invoked in this case. When issuing its injunction, the district court pointed to subsection (6) of the civil-remedies section of COCCA, Colorado's anti-racketeering law, and said that statutory subsection gave it the authority to grant the preliminary relief it did. See Colo. Rev. Stat. § 18-17-106(6); see also Fed. R. Civ. P. 64(a) ("[T]hroughout an action, every remedy is available that, under the law of the state where the court is located, provides for seizing a person or property to secure satisfaction of the potential judgment."). So saying the district court lacked inherent authority to do as it did gets the defendants precisely nowhere for the simple reason that the district court never purported to rely on its inherent authority, but expressly relied instead on state statutory authority.

Of course, Grupo Mexicano didn't resolve -- only highlighted -- the question whether state law can expand the equitable powers of a federal court sitting in diversity. For its part, the district court ventured an affirmative answer to the question because of FDIC v. Antonio, 843 F.2d 1311 (10th Cir. 1988). As a matter of state law, Antonio held that subsection (6) of COCCA's civil remedies section authorizes courts to issue preliminary injunctions seizing assets even in the absence of a pre-existing lien or equitable interest. As a matter of federal law, Antonio saw no reason to doubt that a district court operating under the diversity statute could exercise this same authority. Id. at 1312-14. In light of these twin holdings, the district court in this case held that it possessed authority to issue its preliminary injunction.

The defendants take issue with the district court's analysis but give us too little to work with. For example, they argue that Antonio is no longer good law after Grupo Mexicano. But they (again) disregard the fact that Grupo Mexicano purported to speak only to a district court's inherent authority to issue preliminary injunctions and expressly left open the question of a district court's authority to issue preliminary injunctions under the diversity statute and state law. Separately, the defendants before us fault the defendants in Antonio for failing to identify federal statutory limits on the authority of a district court sitting in diversity to impose a preliminary injunction authorized by state law. But then Mr. Lasshofer and the corporate defendants themselves fail to identify any such limits in their briefing in this case. They point to § 11 of the Judiciary Act of 1789. But that provision says only that federal courts shall have cognizance of civil suits "at common law or in equity," see 1 Stat. 73, 78, and the defendants never explain how that language prohibits a federal court authorized by Congress's diversity statute to apply state law from granting preliminary injunctive relief authorized by state law.

This isn't to suggest a federal court sitting in diversity may always and everywhere impose a remedy authorized by state law. The Supreme Court has told us that it's a mistake to assume "that whatever equitable remedy is available in a State court must be available in a diversity suit in federal court." Guaranty Trust Co. v. York, 326 U.S. 99, 105 (1945). The difficulty is that the defendants haven't developed a theory why, as a matter of federal law, the district court in this case couldn't issue a preliminary injunction authorized by COCCA. A good argument might exist -- we do not prejudge what arguments other parties might muster in other cases -- but none's been made here.

There is, however, another, related problem lurking here, one neither party has addressed. As a matter of state law, Antonio held that subsection (6) of COCCA's civil-remedies section authorizes preliminary injunctions freezing assets worldwide. See Colo. Rev. Stat. § 18-17-106(6). But by its terms, subsection (6) permits preliminary injunctive relief only in cases "proceeding under subsection (1)." In turn, subsection (1) governs cases seeking permanent equitable relief. The complaint in this case, however, doesn't request any form of permanent equitable relief, only damages. See Complaint, No. 1:12-CV-869-RBJ, at ¶¶ 261, 282, 292 (D. Colo. Apr. 4, 2012). Damages actions proceed under subsection (7) -- not subsection (1) -- and subsection (7) does not mention, let alone authorize, preliminary injunctive relief. Put simply, as a matter of state law COCCA appears to authorize preliminary injunctive relief in cases seeking permanent equitable relief, but not (as here) cases seeking only damages.

Though the parties don't address this potential problem, it's unclear whether we can ignore it. In our adversarial system we don't usually go looking for trouble but rely instead on the parties to identify the issues we must decide. At the same time, of course, this court has an affirmative obligation to admit when we or the district court lack the jurisdiction, or power, to hear a case. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998). And it's at least possible this problem bears a jurisdictional cast. To be sure, the "jurisdiction" epithet has been used too casually by too many courts in the past and it bears "many, too many, meanings." Id. at 90 (internal quotation marks omitted). But when talking about the absence of any inherent authority permitting a district court to issue a preliminary injunctive relief freezing a defendant's assets worldwide, Grupo Mexicano spoke of the problem as one of power and authority, tying its discussion to the grant of equity jurisdiction found in the Judiciary Act of 1789. When addressing cases arising under the diversity statute, we've seen the Supreme Court has likewise suggested that diversity authority doesn't necessarily endow federal district courts the power or authority to issue every form of equitable relief a state court might possess in the same situation. Guaranty Trust, 326 U.S. at 105. Whether, given all this, the potential absence of an equitable remedy under state law qualifies as a "jurisdictional" limit on a federal court sitting in diversity, or suggests only a potential error in the application of state law, poses at least a lively question.

While we would normally pursue the question to its end and decide definitively whether we have a true jurisdictional problem knocking about here, we discern another and easier avenue to resolve this appeal. Even assuming a preliminary injunction is available in a COCCA action seeking only damages, Mr. Lasshofer and the corporate defendants argue another problem still bars the plaintiffs' way. As a matter of state law, they say, the plaintiffs have failed to demonstrate statutory standing to pursue any COCCA claim. And without the right to pursue any COCCA claim, it follows that the preliminary injunction must be withdrawn. This argument has the virtue of being fully briefed, easily resolved, and right. It has another virtue too. Because both this more modest state statutory standing question and any possible "jurisdictional" problem concerning the limits of the district court's authority to issue injunctive relief in this case amount to "threshold grounds" for resolving this appeal short of reaching its merits, we possess "leeway to choose among" them and to "take[] the less burdensome course." Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 431, 436 (2007). We think it prudent to do just that in this case to avoid needlessly making a truly mammoth appeal out of one already large and tangled enough.

* * *

The statutory standing question is (relatively) easily resolved and dispositive for a reason we alluded to some time ago. It was Mesatex that sought the loan, signed the loan application, and received the loan commitment. It was Mesatex's subsidiaries that signed the loan agreement and its amendment, paid the loan fees, and advanced the loan collateral. It was those companies, too, that owned the Breckenridge properties and whose business allegedly suffered when the loan failed to materialize. Yet neither Mesatex nor any of its subsidiaries is named as a plaintiff in this lawsuit. Mr. Niemi and his colleagues stress that they invested in Mesatex and its subsidiaries; they stress, too, that they guaranteed some of the corporations' loans. But it's long settled law that a shareholder or guarantor lacks standing to assert RICO claims when their losses are only derivative of a corporation's -- when the individuals' losses come about only because of the firm's loss. Every circuit to have addressed the question -- including this one in Bixler v. Foster, 596 F.3d 751, 758-59 (10th Cir. 2010) -- has held that the proper plaintiff in these situations is the corporation, not the investor or guarantor. See Sparling v. Hoffman Const. Co., Inc., 864 F.2d 635, 640-41 (9th Cir. 1988) (collecting cases). We know, too, that Colorado courts interpreting COCCA look to federal RICO law for guidance. See Floyd v. Coors Brewing Co., 952 P.2d 797, 803 (Colo. App. 1997), rev'd on other grounds sub nom. Coors Brewing Co. v. Floyd, 978 P.2d 663 (Colo. 1999). So taking all this together it seems pretty plain the plaintiffs lack standing to proceed under COCCA, let alone to win a preliminary injunction under COCCA. After all, "in addition to the Article III standing requirements, [p]laintiffs must also meet the statutory standing requirements" of the statute under which they seek relief. Utah v. Babbitt, 137 F.3d 1193, 1203 (10th Cir. 1998); see also id. at 1216 (analyzing statutory standing under the APA); Kansas v. United States, 249 F.3d 1213, 1221-23 (10th Cir. 2001).

Admittedly, few rules lack exceptions and the statutory standing rule we've just identified certainly bears an important one we must pause to consider. A plaintiff who can identify some way in which he or she suffered personally and directly as a result of the defendant's conduct -- some way in which his or her losses are not derivative of the corporation's losses -- can proceed with or without the corporation in the case. See generally Franchise Tax Bd. of Cal. v. Alcan Aluminium Ltd., 493 U.S. 331, 336 (1990). So, for example, when a plaintiff can claim that the defendant's actions not only hurt the corporation but prevented her personally from practicing her trade or profession, that can be enough to allow a suit to proceed with her as plaintiff. See Heart of Am. Grain Inspection Servs., Inc. v. Missouri Dep't of Agric., 123 F.3d 1098, 1102 (8th Cir. 1997); Cooper v. McBeath, 11 F.3d 547, 551 (5th Cir. 1994); see also Hobby Lobby, F.3d , 2013 WL 3216103, at *34 (10th Cir. 2013) (en banc) (Gorsuch, J., concurring).

The problem we face is this. Despite being challenged to do so in this appeal, the plaintiffs have not identified in their brief any direct and personal injury they suffered. Mr. Niemi points out that he signed the loan agreement with Mr. Burgess and that he wired the funds required by the loan agreement. But he admits he signed the loan agreement and other documents only in his capacity as a manager of Mesatex or its subsidiaries. See, e.g., Loan Agreement at 81, Exh. 17 to Mot. for Temporary Restraining Order & Preliminary Injunction, No. 12-CV-869-RBJ (D. Colo. Apr. 5, 2012), ECF No. 6. And signing a contract or performing actions on behalf of a corporation generally isn't enough to qualify as a direct and personal interest. See Kaplan v. First Options of Chicago (In re Kaplan), 143 F.3d 807, 812 (3d Cir. 1998). Likewise, Mr. Niemi never disputes that he and his colleagues sent money to the defendants only in their roles as Mesatex's creditors to satisfy Mesatex's contractual duties to the defendants -- and they develop no argument and cite no authority suggesting this was enough to establish a direct and personal loss of their own. See Am. Capital Corp. v. FDIC, 472 F.3d 859, 866-67 (Fed. Cir. 2006). We are thus left without any convincing explanation how the losses the individual plaintiffs suffered in this case arose from anything other than their participation as investors, creditors, and guarantors of the injured corporation.

Without proof of a direct and personal injury, the plaintiffs try to save the preliminary injunction with a very different line of attack. They assert that Mesatex assigned its claims to them or that they otherwise succeeded to the company's interests when it became defunct. But everyone acknowledges that standing to pursue a claim must normally exist by the time a lawsuit is filed. See Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180 (2000); Utah Ass'n of Counties v. Bush, 455 F.3d 1094, 1099 (10th Cir. 2006). And though the record before us on appeal suggests an assignment took place sometime, it doesn't tell us when -- let alone offer assurance that the assignment took place before this lawsuit began. Neither does the record on appeal show that Mesatex or its subsidiaries ever dissolved, let alone that they dissolved and the plaintiffs somehow succeeded to their claims before this lawsuit started. The burden of proving statutory standing rests on the plaintiffs' shoulders and, try as we might, we see no way we can faithfully hold that they carried that burden in their appellate briefs and the record they assembled for this appeal.

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