Bankers Trust Co. v. Rhoades

741 F.2d 511, 1984 U.S. App. LEXIS 20128
CourtCourt of Appeals for the Second Circuit
DecidedJuly 26, 1984
DocketNo. 450, Docket 83-7636
StatusPublished
Cited by83 cases

This text of 741 F.2d 511 (Bankers Trust Co. v. Rhoades) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bankers Trust Co. v. Rhoades, 741 F.2d 511, 1984 U.S. App. LEXIS 20128 (2d Cir. 1984).

Opinion

KEARSE, Circuit Judge:

Bankers Trust Company (“Bankers”) appeals from a judgment of the United States District Court for the Southern District of New York, William C. Conner, Judge, dismissing pursuant to Fed.R.Civ.P. 12(c) Bankers’s complaint which sought, inter alia, treble damages pursuant to the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968 (1982), for injuries suffered principally as a result of defendants’ bankruptcy frauds. The district court, in an opinion reported sub nom. Bankers Trust Co. v. Feldesman, 566 F.Supp. 1235 (S.D.N.Y.1983), found that the complaint failed to state a claim under 18 U.S.C. § 1964 (“civil RICO”) because the statute provides relief only for “distinct RICO injury,” i.e., injury caused by the pattern of racketeering activity rather than by the predicate acts that constitute the pattern. On appeal Bankers challenges the court’s interpretation of the statute. As set forth below, we are in substantial agreement with the district court’s interpretation, and we affirm the dismissal of the complaint.

I. BACKGROUND

The complaint alleges a scheme by the defendants to defraud Bankers through, inter alia, the concealment of assets subject to distribution in bankruptcy and the bribery of a'judge. Since the case comes to us on an appeal from entry of judgment on the pleadings pursuant to Rule 12(c), we set forth the facts as alleged in the complaint. Many of the allegations have been thoroughly detailed in the bankruptcy court’s opinion in In re Braten Apparel Corp., 21 B.R. 239 (Bankr.S.D.N.Y.1982), and the district court’s opinion affirming the bankruptcy court’s order, see 26 B.R. 1009 (S.D.N.Y.1983), familiarity with which is assumed.

The principal actors in the scheme were Braten Apparel Corp. (“BAC”), a corporation that owed Bankers some $4,000,000; defendant Milton Braten (“Braten”), an officer and principal shareholder of BAC; defendant Daniel Rhoades, an officer, director, and/or shareholder of BAC, and an attorney for BAC and Braten; defendant Herman Soifer, a shareholder of BAC; and Walter Feldesman, an attorney who represented BAC, Soifer, and defendant Brook-[513]*513field Clothes, Inc. (“Brookfield”).1 Braten, Rhoades, and Soifer were also officers, directors, and/or shareholders of all of the other corporate defendants named in the complaint in the present action.

A. The Initial Bankruptcy Fraud

The initial fraud consisted of a complex scheme devised in 1974 by Braten, Feldes-man, and Soifer to enable BAC to eliminate, without payment, much of its $4 million indebtedness to Bankers while retaining valuable assets. In August 1974, BAC acquired all of the stock of Brookfield, an entity then having a net worth of more than $3 million. Prior to the acquisition, Feldesman, Braten, and Soifer agreed that Soifer would be given the apparent ownership of the Brookfield stock but would hold the stock in a secret trust for BAC while BAC filed a bankruptcy petition and gained a discharge of its indebtedness under Chapter XI of the then-applicable Bankruptcy Act of 1898 (“Bankruptcy Act”), 11 U.S.C. §§ 1-1103 (1976). To implement the plan, Braten and Soifer executed a sham “Shareholder’s Agreement,” drafted by Feldes-man, which provided that if BAC or Braten did not furnish a $250,000 loan to Brook-field by a specified date, BAC’s stock in Brookfield would automatically be transferred to Soifer. At the time this agreement was entered into, Braten, Feldesman, and Soifer knew that the funding condition would not be met; they intended that Soi-fer would hold the stock of Brookfield, safe from the claims of BAC’s creditors, only during BAC’s bankruptcy proceedings. Soifer was to return the stock to BAC following its discharge in bankruptcy.

On September 5, 1974, BAC’s stock in Brookfield was transferred to Soifer; on that day BAC filed its petition in bankruptcy. BAC did not list the Brookfield stock as an asset. Braten, Rhoades, Soifer, and Feldesman thereafter affirmatively misrepresented to Bankers and the bankruptcy court that BAC had, through failure to meet the Shareholder’s Agreement’s funding condition, lost its ownership of the stock. Through this and related misrepresentations, Feldesman and the individual defendants induced BAC’s creditors, including Bankers, to approve a plan of arrangement under which Bankers would receive payment of only 17-V2% of its claims and BAC would be relieved of more than $4.3 million of its debts. Had BAC’s stock in Brookfield been included in BAC’s plan of arrangement, BAC would have had assets sufficient to satisfy Banker’s claims in full.

BAC’s plan of arrangement was approved by the court in March 1976. In August 1976, Soifer returned the Brook-field stock to BAC. Soifer, Braten, and Rhoades then revealed to Brookfield’s auditors that BAC had in fact owned this stock all along.

In September 1976 Bankers commenced a proceeding in the bankruptcy court under Bankruptcy Act § 386, 11 U.S.C. § 786 (1976),2 to revoke the confirmation of BAC’s plan of arrangement because of the fraudulent concealment of BAC’s ownership of the Brookfield stock. Following lengthy proceedings including a trial, the bankruptcy court revoked the confirmation in 1982, see In re Braten Apparel Corp., supra, 21 B.R. 239, finding that the individual defendants had devised and carried out a scheme to defraud by making false statements and oaths in BAC’s listing of the assets of the estate, and by intentionally concealing property of BAC. The bankruptcy court ordered BAC to “offer a plan which is realistic ... in. light of the fact that the debtor owns a valuable asset —Brookfield.” Id. at 263. This decision [514]*514was affirmed by the district court, see 26 B.R. 1009, and the district court’s decision was affirmed by this Court by summary order entered on September 1, 1983.

B. The 1982 Bankruptcy Fraud

In the meantime, however, BAC had entered into a new scheme to protect many of its assets from its creditors. Its principal action, again, was to transfer its stock in Brookfield. In January 1982, defendant Bennington Court Ltd. (“Bennington”) borrowed more than $8.9 million from a financing company called KB Business Credit, Inc. (“KBBC”). Bennington then gave these funds to several of the other defendants in this case. When the funds were not repaid, KBBC brought a civil RICO action for treble damages against BAC, Braten, Rhoades, and others. The defendants quickly settled the lawsuit by having BAC convey its stock in Brookfield — for little or no consideration — to defendant Todd Equipment Leasing Co., Inc., which in turn pledged the stock to KBBC. As a result, BAC was able to frustrate Bankers’s attempt in bankruptcy court to obtain some benefit from BAC’s earlier ownership of the stock of Brookfield.

C. The Frivolous Lawsuits and the Bribery of a Judge

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Bluebook (online)
741 F.2d 511, 1984 U.S. App. LEXIS 20128, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bankers-trust-co-v-rhoades-ca2-1984.