On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civil Action No. 88-1713; MDL No. 655.
Mansmann and Scirica, Circuit Judges and William L. Standish, District Judge.*fn*
In this appeal, we consider the legal limitations on the rights of depositors to assert individual RICO claims against the directors, officers, auditors, and outside counsel of an insolvent savings and loan association, rather than to recover their losses through the receiver's actions on their behalf, or by way of a derivative suit. The plaintiffs in this class action, former depositors of Sunrise Savings & Loan Association of Florida ("Old Sunrise"), a Florida corporation, and Sunrise Savings & Loan Association ("New Sunrise"), a federal mutual association, appeal the dismissal of their complaint against the former directors, officers, attorneys, and auditors of Old Sunrise. The complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968 (1988), as well as pendent state law claims arising from the insolvency and federal takeover of Old and New Sunrise. The district court granted summary judgment for defendants after finding that plaintiffs could not establish that defendants' misrepresentations regarding the financial condition of Old Sunrise caused plaintiffs' losses. Moreover, the district court found that to the extent plaintiffs had alleged that defendants' wrongdoing caused the demise of New Sunrise or that defendants misrepresented and failed to reveal that they had injured Old or New Sunrise, plaintiffs had asserted a derivative claim that could not be brought individually. In re Sunrise Securities Litigation, 108 Bankr. 471, 475 (E.D. Pa. 1989). We hold that this entire claim is derivative and cannot be brought as an individual RICO action. Therefore, we will affirm the district court's grant of summary judgment.
On October 11, 1984, plaintiffs Anne and George Popkin purchased five $100,000 six-month certificates of deposit from Old Sunrise. Popkin claims that they purchased the certificates after learning of Old Sunrise's favorable interest rate in a Florida newspaper advertisement and after confirming that the certificates were insured by the Federal Savings and Loan Insurance Corporation ("FSLIC").*fn1 To ensure that their entire deposit would be protected under the $100,000 FSLIC insurance limit, the Popkins placed the five certificates in separate accounts under the names of George Popkin, Anne Popkin, George Popkin in trust for Anne Popkin, Anne Popkin in trust for George Popkin, and George or Anne Popkin. Popkin asserts that at the time of purchase, he requested a financial statement for Old Sunrise and that he received a statement for the period ending June 1983. On April 11, 1985, the certificates matured. The Popkins withdrew the interest and rolled over the principal into five one-year $100,000 certificates.
On July 18, 1985, the Federal Home Loan Bank Board ("Bank Board") declared Old Sunrise insolvent, appointed FSLIC as receiver, and organized New Sunrise, the federal mutual association to which Old Sunrise's assets and liabilities were transferred. Defendants were not involved in the establishment or operation of New Sunrise. A new board of directors, auditor, and general counsel were appointed, and AmeriFirst Federal Savings and Loan Association was hired as management advisor. Plaintiffs have acknowledged that none of the Old Sunrise depositors lost any portion of their Old Sunrise deposits, including those whose deposits exceeded the insurance limit of $100,000 prescribed under 12 C.F.R. § 564.3. In re Sunrise Securities Litigation, 108 Bankr. at 474 & n.4.
On July 19, 1985, The Wall Street Journal and The New York Times ran articles on the Bank Board's takeover and the financial problems that led to Old Sunrise's failure. The Wall Street Journal reported that the Bank Board "will give the new Sunrise an undisclosed amount of promissory notes sufficient to make the thrift technically solvent . . . in exchange for IOUs that don't have to be repaid until the thrift returns a profit." The New York Times reported that the Bank Board, through FSLIC, "would issue promissory notes to the new thrift institution to insure it was financially solvent."
In a letter dated July 30, 1985, the president of New Sunrise informed depositors of the insolvency of Old Sunrise, the transfer of accounts to New Sunrise, and the retention of AmeriFirst as management advisor. The letter stated that the Bank Board had provided New Sunrise "with the financial resources to insure its stability and solvency" and that "the result of the Bank Board's action is a stable, solvent Sunrise Savings." Popkin claims that he neither saw the newspaper articles nor received the July 30 letter. He contends that he remained unaware of Old Sunrise's insolvency until July 1986.
In the meantime, on April 11, 1986, the Popkins' Old Sunrise certificates matured. The Popkins withdrew their interest and rolled over the principal into five $100,000 one-year certificates with New Sunrise. They elected to receive their interest quarterly rather than at maturity. Nonetheless, they did not withdraw the interest when it was posted the following quarter.
On September 12, 1986, the Bank Board declared New Sunrise insolvent and temporarily froze all accounts. In October 1986, FSLIC transferred the insured deposits to Beach Federal Savings and Loan Association and issued certificates of claim for the uninsured interest that had accrued between April 1986 and September 1986 on each of the Popkins' five certificates. Since July 1988, FSLIC has made three partial distributions of proceeds to New Sunrise depositors, including the Popkins, amounting to a total of 43.45% of their uninsured deposits. At the time of the district court decision, the Popkins had outstanding claims for interest of $1,878.92 on each certificate, totaling $9,394.60. Id. at 475.
The Popkins filed this action in February 1988 on behalf of all depositors with interest-bearing accounts at Old Sunrise on July 15, 1985 seeking recovery of their uninsured deposits.*fn2 In their complaint, they allege that defendants violated RICO, 18 U.S.C. § 1962(a), (c), and (d), by conducting the affairs of Old Sunrise through a pattern of racketeering activity consisting of numerous acts of mail, wire, and securities fraud, and the interstate transportation and receipt of fraudulently-obtained funds. According to plaintiffs, defendants attracted depositors "by holding Sunrise out to federal and state regulators and the public . . . as a legitimate, well-run and secure savings and loan association" and by promising attractive interest rates in "advertisements, press releases, periodic reports and other publicly disseminated materials." Complaint paras. 15, 20. In particular, plaintiffs contend that defendants failed to disclose that Old Sunrise was neither financially secure nor well-managed and that defendants had engaged in self-dealing. Id. paras. 22-25. Plaintiffs allege that Old Sunrise's insolvency and plaintiffs' losses resulted from defendants' RICO violations. Id. paras. 43, 44.
Certain defendants moved for summary judgment and the district court granted the motion and dismissed the complaint as to all defendants.*fn3 The district court stated that plaintiffs could not recover on the theory that defendants' mismanagement caused the insolvency of either Old or New Sunrise because such a claim was derivative and belonged to FSLIC as receiver for both institutions.*fn4 In re Sunrise Securities Litigation, 108 Bankr. at 477-78. Moreover, the court held that plaintiffs' claims based on the failure to disclose that mismanagement and self-dealing injured Old Sunrise also were derivative. Id. at 479. The court reasoned that, in essence, plaintiffs claimed that defendants failed to inform depositors that defendants had injured Old Sunrise. Thus, the depositors' injury was an indirect result of defendants' wrongdoing to Old Sunrise. In addition, the court concluded that allegations involving misrepresentations made in statements to the general public asserted a wrong that is common to all depositors and, therefore, constituted an indirect injury. Id. The court stated that an individual depositor may bring a derivative action to recover for injuries to the bank that indirectly injured depositors after making an unsuccessful demand on the institution or its receiver to bring suit. The court noted, however, that plaintiffs did not seek to bring a derivative suit nor did they allege an unsuccessful demand on the receiver. Id. at 477 n.7.
While recognizing that claims based on misrepresentations of financial condition could, under certain circumstances, state a claim of individual injury, the court concluded that in this case, plaintiffs might not have stated such a claim because the injury they suffered was common to all depositors of Old Sunrise and because recognition of such a claim might disrupt the federal regulatory receivership scheme. Id. at 480. The district court declined to decide the question, however, because it concluded that the undisputed facts established that plaintiffs' injury did not result from misrepresentations or omissions concerning the financial condition of Old Sunrise. The court reasoned that plaintiffs suffered no loss when Old Sunrise was declared insolvent; rather, their loss occurred only on the New Sunrise certificates purchased in April 1986. Therefore, the court held that summary judgment was appropriate for any RICO claim that plaintiffs might assert based solely on these allegations. Id. at 481.
On appeal, plaintiffs contend that the district court erred in holding as a matter of law that defendants' misrepresentations of the financial condition of Old Sunrise were not the proximate cause of plaintiffs' injuries. Moreover, plaintiffs argue that the district court ...