HCB Fin v. McPherson
8f4th335
| 5th Cir. | 2021Background
- HCB Financial obtained a $2,019,495.82 judgment against Lee McPherson in the Southern District of Mississippi and for years was unable to collect.
- HCB filed a RICO suit in the Western District of Texas seeking treble damages under 18 U.S.C. § 1964(c) and other relief, alleging a scheme to frustrate collection.
- About one month after HCB filed the Texas suit, McPherson deposited the judgment amount plus post-judgment interest in the Mississippi court, satisfying the underlying debt.
- The district court treated the motions to dismiss as raising RICO statutory-standing issues under Rule 12(b)(6) and found HCB alleged two theories of injury: (1) lost debt and (2) lost investment opportunity.
- The court concluded HCB suffered no compensable RICO injury once the judgment was satisfied, dismissed the federal RICO claims with prejudice as amendment would be futile, and declined supplemental jurisdiction over state-law claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a RICO "lost-debt" claim survives after the plaintiff recovers the underlying debt | HCB: Treble damages should be calculated by reference to the amount owed when RICO suit was filed; possibility of treble relief preserves injury | McPherson: Once judgment is satisfied, the debt is not "lost" and there is no injury under §1964(c) | Debt no longer constitutes RICO injury after full satisfaction; lost-debt RICO claim fails when plaintiff recovers the debt |
| Whether PacifiCare, Liquid Air, or Uthe compel a contrary result | HCB: Supreme Court and other circuits suggest remedial treble-damages posture; these cases undermine Second Circuit rule | McPherson: Those decisions are distinguishable on facts or issues (arbitration scope, timing, one-satisfaction rule) | Court finds those authorities distinguishable and not controlling; Second Circuit approach controls here |
| Whether "lost investment opportunity" (speculative higher returns during delay) supplies RICO injury | HCB: Delay in payment cost HCB a profitable investment opportunity and thus a concrete loss | McPherson: That is speculative expectancy, not an actual loss of money; post-judgment interest already compensated deprivation | Speculative lost-opportunity expectancy is insufficient; post-judgment interest made HCB whole |
| Whether dismissal should be with prejudice (futility of amendment) | HCB: Could plead a specific missed investment opportunity if given leave to amend | McPherson: No allegation could convert speculative expectancy into cognizable RICO injury once debt was paid | Dismissal with prejudice affirmed; further amendment would be futile |
Key Cases Cited
- Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985) (RICO private right requires injury to business or property by reason of a §1962 violation)
- Alcorn Cnty. v. U.S. Interstate Supplies, Inc., 731 F.2d 1160 (5th Cir. 1984) (civil RICO requires a substantive violation and injury to business or property)
- In re Taxable Mun. Bond Sec. Litig., 51 F.3d 518 (5th Cir. 1995) (expectancy or lost-opportunity injuries insufficient for RICO standing)
- Bankers Trust Co. v. Rhoades, 859 F.2d 1096 (2d Cir. 1988) (lost-debt damages speculative and unprovable until collection is foreclosed)
- Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158 (2d Cir. 1993) (debt is a basis for RICO trebling only if it cannot be collected by reason of a RICO violation)
- Commercial Union Assurance Co. v. Milken, 17 F.3d 608 (2d Cir. 1994) (plaintiffs who recovered principal and interest lacked demonstrable RICO damages)
- PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401 (2003) (arbitrability of RICO claims and characterization of treble damages as remedial)
- Liquid Air Corp. v. Rogers, 834 F.2d 1297 (7th Cir. 1987) (fact pattern distinguished because payment occurred after entry of trebled RICO judgment)
- Uthe Technology Corp. v. Aetrium, 808 F.3d 755 (9th Cir. 2015) (one-satisfaction issues and arbitration scope distinguished; did not decide lost-debt RICO injury)
- Price v. Pinnacle Brands, Inc., 138 F.3d 602 (5th Cir. 1998) (expectancy interests do not confer RICO standing)