Highland Capital Inc v. Franklin Natl Bank

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 Highland Capital v. Franklin Nat’l Bank No. 02-5505 ELECTRONIC CITATION: 2003 FED App. 0417P (6th Cir.) File Name: 03a0417p.06 DORTCH & DAVIS, Nashville, Tennessee, for Appellee. ON BRIEF: Jeffrey Alan Greene, Nashville, Tennessee, for Appellant. Joseph A. Woodruff, W. Travis Parham, UNITED STATES COURT OF APPEALS WALLER, LANSDEN, DORTCH & DAVIS, Nashville, Tennessee, for Appellee. FOR THE SIXTH CIRCUIT _________________ _________________

HIGHLAND CAPITAL, INC., X OPINION Plaintiff-Appellant, - _________________ - - No. 02-5505 DAVID M. LAWSON, District Judge. The plaintiff, v. - Highland Capital, Inc. (Highland), appeals from a summary > judgment dismissing its complaint against Franklin National , Bank (the Bank) that was brought under the anti-tying FRANKLIN NATIONAL BANK, - Defendant-Appellee. - provisions of the Bank Holding Company Act (BCHA), 12 U.S.C. § 1972. Highland asserted that the Bank required N Highland to purchase stock in the Bank’s holding company as Appeal from the United States District Court a prerequisite for obtaining a loan. The lower court found for the Middle District of Tennessee at Nashville. that there was insufficient evidence of the connection required No. 00-00832—William J. Haynes, Jr., District Judge. by Section 1972 between the loan and the stock purchase. We find that a claim under Section 1972 requires proof that Argued: September 9, 2003 the extension of credit was actually conditioned on the bank’s customer obtaining some other product or service from the Decided and Filed: November 25, 2003 bank or one of its subsidiaries, and that Highland did not offer evidence on this element sufficient to avoid summary Before: GUY and DAUGHTREY, Circuit Judges; judgment. We therefore affirm the judgment of the district LAWSON, District Judge.* court.

_________________ I.

COUNSEL At the time of the loan and the stock purchase, Highland was controlled by its principal shareholder, Steve Morriss. In ARGUED: Jeffrey Alan Greene, Nashville, Tennessee, for an ongoing dispute with his erstwhile business partners, Appellant. Joseph A. Woodruff, WALLER, LANSDEN, Morriss lost control of Highland. None of the individuals who succeeded to control of the company were involved in the loan transactions at issue here, and all of the personnel * who were involved, including bank representatives and The Honorable David M. Lawson, United States District Judge for Morriss, aver that no tying condition was imposed as a the Eastern D istrict of M ichigan, sitting by de signation.

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requirement for obtaining the loan. Highland, under new the Bank had “dealt with customer on several deal [sic] over ownership, believes that it offered circumstantial evidence the past years. Satisfactory. Will update appraisal.” Ibid. sufficient to contradict the direct denials of the defendant’s The Report, however, was later amended to correct errors and witnesses and to create a material fact question that precludes to remove the reference to the stock purchase. summary judgment. On the same day that the loan was approved, Highland Morriss controlled Highland in 1998. In the later part of deposited $499,777 into a securities fund account with FFS. that year, Highland obtained a substantial sum of money from These were the funds used to purchase 69,400 shares of stock a commercial transaction. It subsequently deposited $1 in the Bank’s holding company, FFC. Morriss claims that he million of those funds into its account at the Bank. Morriss bought the stock “because [he] believed it was a good then approached Charles Lanier, the Bank’s Executive Vice- investment.” Aff. of Steve Morriss at ¶ 2, J.A. at 79. Prior to President, and told him that Highland was interested in this time, neither Highland nor Morriss owned any FFC stock, purchasing the stock of the Bank’s holding company, nor did Morriss or Highland ever purchase additional stock. Franklin Financial Corporation (FFC). Lanier sent Morriss to see James Rinker, a broker with Franklin Financial Securities, The loan closed on December 7, 1998, and was secured by Inc. (FFS), who helped the plaintiff open a securities account. the Hollis Tract and a portion of the plaintiff’s FFC stock.

Shortly thereafter, Highland sought a loan from the Bank In the months that followed, the Bank made several for $610,000 to refinance an existing loan on a 42-acre parcel additional loans to Highland at Morriss’ request. There is no of real estate located in Williamson County, Tennessee, contention by the plaintiff that these loans were conditioned referred to as the Hollis Tract. Morriss averred that he alone upon Highland’s purchase of FFC stock. Rather, the plaintiff made the decision to seek this loan on behalf of Highland. claims that these other loans provide circumstantial evidence that the original loan was the product of an illegal tying Highland received loan approval from the Bank on arrangement between the plaintiff and the Bank. The Bank November 10, 1998. In making its decision, the Bank waived lent the plaintiff $157,000 in February 1999 to fund litigation its otherwise applicable policy of requiring a written loan in which Morriss was embroiled with his ex-partners. Then application and submission of the borrower’s financial in April 1999, the Bank lent the plaintiff an additional statement. The Bank also did not require Morriss to $85,000, which was also secured by the Hollis Tract. The personally guarantee the loan. The Bank’s decision is Bank additionally approved a renewal of the original reflected on a pre-printed form entitled “Lending Officer’s $610,000 note for $607,000 in January 2000, and a renewal Report” dated November 10, 1998. This report states: of the $157,000 note on May 31, 2000. “Customer has wired $1,000,000 into cash management account. Customer has also put in a buy order for 70,000 Morriss lost control of Highland in July 2000. A closely shares of Franklin Financial Stock.” Joint Appendix (J.A.) at held company called Tareco Properties, Inc. (Tareco) 667. The loan collateral is described as 46 acres of real estate purchased a Texas court judgment that was entered sometime containing a 2,500-square-foot home valued at $800,000, prior to 2000, for which Morris was somehow liable. In apparently referring to the Hollis Tract, and a $90,000 escrow partial satisfaction of that judgment, Mr. Morriss gave Tareco assignment. The form also notes that the financial statement his Highland stock. However, Tareco is owned and requirement was waived, and contained the explanation that controlled by Kevin McShane, who is affiliated with two of

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Morriss’ former business partners, Jerrold Pressman and Bank employee averred that Inman caused the Bank to renege Robert Geringer. Pressman is the plaintiff in a lawsuit on a loan commitment, thereby depriving the Bank of a pending in the federal district court in Tennessee that alleges profitable business opportunity available at a very low risk, that Morriss, with the aid of the Bank and its Chairman, and then offered to make the loan privately. Finally, conspired to defraud Pressman and Morriss’ other business Highland submitted the opinion of Frank De Lisi, who was partners in a limited partnership known as Inglehame Farm, offered as a banking expert, that the $610,000 loan “should LP. The purpose of this limited partnership was to develop not have been made.” Dep. of Frank DeLisi at 152, 170-71, 400 acres of Tennessee property. The property, however, J.A. at 846-850. Highland argued that the irregularities in lacked access to major streets. The suit alleges that Morriss, processing the loan, the lack of solid information about the who was supposed to investigate acquiring the Hollis Tract creditworthiness of the borrower, and other evidence that the for that purpose for the partnership, told his partners that the loan otherwise would not have been made in the normal property could not be purchased and, unbeknownst to them, course of banking practice, coupled with the nefarious proceeded to purchase it for himself. conduct of Gordon Inman who conspired with Morriss to cheat Morriss’ business partners, proved that another, illegal Highland, under its new ownership, filed suit against the motivation must have prompted the Bank to lend $610,000 to Bank asserting that the $610,000 loan was conditioned on the Highland; and that the “other motivation” must have been the purchase of stock in the Bank’s holding company, and thus prior purchase of the holding company stock. the Bank violated the anti-tying provisions of 12 U.S.C. § 1972. The Bank moved for summary judgment. In support The motion was referred to the magistrate judge, who filed of the motion, the Bank filed affidavits from the seven a report recommending that the motion be granted. The members of its loan committee, who each averred that the magistrate judge first rejected the plaintiff’s premise that its loan was not conditioned on the purchase of the holding statutory claim under the BHCA was analogous to an antitrust company stock; the affidavits of Morriss and Bank officer cause of action. He then found nothing illogical about a bank Charles Lanier, who attested that Morriss initiated the inquiry making a loan to an established customer with $1 million in regarding the purchase of the stock and that Lanier did not the bank and securing the loan with property valued at more solicit the transaction; and the deposition of McShane, in than the loan value. The magistrate judge noted that the which he acknowledged that he was aware of no document, plaintiff was required to show that it was coerced to purchase statement or conversation that established the tying of the bank stock as a condition of the loan to avoid summary loan to the stock purchase. In response, Highland offered judgment. After reviewing the circumstantial evidence, deposition evidence that tended to prove that most of the including evidence that the loan was not made pursuant to Bank’s stock that Highland purchased came from the private normal banking procedures, that the loan and stock purchase holdings of Gordon Inman, the Bank’s Chairman, who stood occurred at relatively the same time, and that the loan was to profit personally from the transaction. The plaintiff points part of a larger scheme between Morriss and the Bank, the out that James Rinker of FFS was Inman’s son-in-law and magistrate concluded that the evidence did not create a that he facilitated the stock transaction. Highland also filed genuine issue of material fact. an affidavit from an individual who contended that Inman engaged in private loan transactions with him when the Bank Following an order requesting further findings, the could not do so, and that one of those loans was conditioned magistrate judge supplemented his report and on the purchase of Bank holding company stock. A former recommendation. The plaintiff filed timely objections to the

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recommendation. The district court subsequently granted the judgment motion must “do more than simply show that there defendant’s motion for summary judgment and dismissed the is some ‘metaphysical doubt as to the material facts.’” Pierce complaint on March 22, 2002. The court adopted the v. Commonwealth Life Ins. Co., 40 F.3d 796, 800 (6th Cir. magistrate judge’s description of the factual record, and then 1994) (quoting Matsushita Elec. Ind. Co. v. Zenith Radio concluded that there was no evidence that the Bank coerced Corp., 475 U.S. 574, 586 (1986)). Thus, “[t]he mere the plaintiff to purchase stock as a condition of obtaining the existence of a scintilla of evidence in support of the plaintiff's loan, and no proof that the Bank “possessed the ‘appreciable position will be insufficient; there must be evidence on which economic’ power in the loan market to impose [the] tying the jury could reasonably find for the plaintiff.” Anderson, arrangement.” Dist. Ct. Judgment at 2, J.A. at 13. Judgment 477 U.S. at 251-52. was entered for the defendant, and the plaintiff then filed its notice of appeal. As noted above, the statute upon which the plaintiff’s claim is based comes from the BHCA, and states in relevant part: II. (1) A bank shall not in any manner extend credit, lease We review an order granting summary judgment de novo or sell property of any kind, or furnish any service, or fix and use the same standard employed by the district court. See or vary the consideration for any of the foregoing, on the Moore v. Philip Morris Cos., Inc., 8 F.3d 335, 339 (6th Cir. condition or requirement-- 1993). That test, of course, is set forth in Federal Rule of Civil Procedure 56(c), which states that summary judgment ... is allowed where the moving party establishes through pleadings, depositions, answers to interrogatories, admissions, (B) that the customer shall obtain some additional credit, and affidavits that “there is no genuine issue as to any property, or service from a bank holding company of material fact and that the moving party is entitled to a such bank, or from any other subsidiary of such bank judgment as a matter of law.” Fed. R. Civ. P. 56(c). A holding company; [or] moving party can meet its burden under Rule 56(c) by “‘showing’ – that is, pointing out to the district court – that ... there is an absence of evidence to support the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (D) that the customer shall provide some additional (1986). See Estate of Mauro By and Through Mauro v. credit, property, or service to a bank holding company of Borgess Med. Ctr., 137 F.3d 398, 401 (6th Cir. 1998). Once such bank, or to any other subsidiary of such bank the moving party has made that showing, the nonmoving holding company. party cannot rest on its pleadings, but must identify specific 12 U.S.C. § 1972 (emphasis added). Congress enacted this facts that can be established by admissible evidence that provision “to apply the general principles of the Sherman demonstrate a genuine issue for trial. Anderson v. Liberty Antitrust Act prohibiting anticompetitive tying arrangements Lobby, Inc., 477 U.S. 242, 247-48 (1986); Celotex, 477 U.S. specifically to the field of commercial banking.” Kenty v. at 324; Hall v. Tollett, 128 F.3d 418, 421-22 (6th Cir. 1997). Bank One, N.A., 92 F.3d 384, 394 (6th Cir. 1996) (quoting We review the evidence in the light most favorable to the Parsons Steel, Inc. v. First Alabama Bank of Montgomery, nonmoving party. However, the party opposing the summary

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N.A., 679 F.2d 242, 245 (11th Cir.1982), rev’d on other However, a plaintiff need not establish a bank’s economic grounds, 474 U.S. 518 (1986)). power or an anti-competitive effect to make out a claim under 12 U.S.C. § 1972. “The language of the [Act] makes clear The Sherman Act does not explicitly prohibit tying that the availability to a potential customer of any credit, arrangements. However, such arrangements can violate both property, or service of a bank may not be conditioned upon Section 1 of the Sherman Act (15 U.S.C. § 1) and Section 3 that customer’s use of any other credit, property, or service of the Clayton Act (15 U.S.C. § 4) when they produce an offered by the bank . . . . The purpose of this provision is to anticompetitive effect. A tying arrangement may also support prohibit anti-competitive practices [that] require bank a claim for monopolization under Section 2 (15 U.S.C. § 45) customers to accept or provide some other service or product of the Sherman Act. See Davis v. Marathon Oil Co., 528 or refrain from dealing with other parties in order to obtain F.2d 395, 398 (6th Cir. 1975). A tying arrangement is the bank product or service they desire.” S. Rep. 91-1084 defined “as an agreement by a party to sell one product but (1970), reprinted in 1970 U.S.C.C.A.N. 5519, 5535. only on the condition that the buyer also purchases a different Nonetheless, Section 1972 “was not intended to interfere with (or tied) product, or at least agrees that he will not purchase the conduct of appropriate traditional banking practices,” that product from any other supplier.” Northern Pac. Ry. Co. McCoy v. Franklin Sav. Ass’n 636 F.2d 172, 175 (7th Cir. v. United States, 356 U.S. 1, 5-6 (1958). Most tying cases 1980) (quoting Clark v. United Bank of Denver Nat’l Assoc., involve a seller’s attempt to exploit its economic power over 480 F.2d 235, 238 (10th Cir.), cert. denied, 414 U.S. 1004 one product or in one market to force a less desirable, tied (1973)), or to prohibit banks from protecting their product on a buyer. Thus, tying arrangements have been investments. Parsons Steel, Inc., 679 F.2d at 245. found to be “unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying To make out a claim under Section 1972, therefore, the product to appreciably restrain free competition in the market plaintiff must prove that (1) the bank imposed an anti- for the tied product and a ‘not insubstantial’ amount of competitive tying arrangement, that is, it conditioned the interstate commerce is affected.” Id. at 6. extension of credit upon the borrower’s obtaining or offering additional credit, property or services to or from the bank or A tying claim under the Sherman Act requires that the its holding company; (2) the arrangement was not usual or plaintiff prove that a seller had substantial economic power in traditional in the banking industry; and (3) the practice the tying product’s market, see Jefferson Parish Hosp. Dist. conferred a benefit on the bank. See Kenty, 92 F.3d at 394 No. 2 v. Hyde, 466 U.S. 2, 12-13, 26-31 (1984) (noting that (quoting Sanders v. First Nat’l Bank & Trust Co., 936 F.2d “the essential characteristic of an invalid tying arrangement 273, 278 (6th Cir. 1991)). lies in the seller’s exploitation of its control over the tying product to force the buyer into the purchase of a tied product The district court based its summary judgment for the that the buyer either did not want at all, or might have defendant in part on the ground that the plaintiff failed to preferred to purchase elsewhere on different terms”), and an offer evidence of the Bank’s “‘appreciable economic’ power anticompetitive effect in the tied-product market. See PSI in the loan market to impose [the] tying arrangement.” Dist. Repair Servs. V. Honeywell, Inc., 104 F.3d 811, 821-22 (6th Ct. Judgment at 2, J.A. at 13. This was error. The plaintiff Cir. 1997). was not required to prove that the Bank had sufficient strength in the credit market to enable it to impose the tying arrangement. See Costner v. Blount Nat’l. Bank, 578 F.2d

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1192, 1196 (6th Cir. 1978) (observing that “[t]he bank was The plaintiff argues that the circumstantial evidence points also sued under the Bank Holding Company Act, which to the conclusion that Morriss caused Highland to buy the establishes a Per se [sic] rule and provides the same penalties Bank’s holding company stock specifically in order to for tying arrangements as the Sherman Act, but without the influence the Bank’s decision on Highland’s loan request. necessity of proving any economic power in the market for That argument suggests that a statutory claim can be the tying product”). The plaintiff could satisfy the first established without actually proving “coercion” on the part of element required of a claim under Section 1972 merely by the Bank. Indeed, in Dibidale of La., Inc., v. American Bank showing that the Bank demanded that Highland obtain other & Trust Co., 916 F.2d 300 (5th Cir. 1990), the court held that property (the bank holding company stock) or furnish other the anti-tying provision of the BHCA “does not include a property (the payment for the stock) as a condition or coercion element.” Id. at 302. In that case, the plaintiff requirement of obtaining the $610,000 loan. sought a construction loan from the defendant bank and agreed to hire the bank’s preferred choice as construction We agree with the district court, however, that the plaintiff manager. The loan was made, but the construction manager failed to establish a factual issue on the existence of a tying turned out to be incompetent and caused considerable loss to arrangement. In its motion for summary judgment, the the plaintiff. The plaintiff admitted that hiring the defendant pointed out the absence of evidence on this construction manager was never an explicit condition of element, and came forward with direct evidence to prove the receiving the loan, although the bank had made it clear that it contrary proposition, in the form of affidavits from everyone would feel “comfortable” with that choice, and that he went involved in seeking and making the loan, who each said that along with it out of deference to the bank. In reversing the the stock purchase was not a condition or requirement for the lower court’s dismissal of the Section 1972 claim, the Fifth extension of credit. See Celotex, 477 U.S. at 325. Under our Circuit construed the “condition or requirement” language of summary judgment jurisprudence, the plaintiff was obligated the statute quite broadly, reasoning that “[t]o restrict the scope at that point to come forward with facts that proved, or from of those words to tying arrangements in which a seller is which a fact finder reasonably could infer, that the Bank literally forced to purchase or provide a tied product or required Highland to buy its holding company stock as a service in order to obtain credit would vitiate that section’s condition of receiving the loan. See Anderson, 477 U.S. at intended role, for as Congress recognized, a tying 247-48. To meet that burden, the plaintiff imported the arrangement may squelch competition whether coercive or allegations from the lawsuit by Pressman against the Bank not.” Id. at 306. and others that Morriss and Inman were engaged in a conspiracy to cheat Morriss’ partners in a real estate Likewise, in S & N Equip. Co. v. Casa Grande Cotton Fin. development venture, testimony that the stock purchase was Co., 97 F.3d 337 (9th Cir. 1996), the Ninth Circuit rejected filled from Inman’s personal holdings through Inman’s son- the argument that Section 1972 requires a claimant to show in-law, proof that the loan did not adhere to the Bank’s “some modicum of coercion” and, instead, held that normal lending policies, and the opinion of a banking expert “[a]lthough some showing of coercion may be required under that the loan should not have been made in the normal course the Clayton Act and the Sherman Act, . . . it is not a of banking business. This offering falls considerably short of requirement under the Bank Holding Company Act.” Id. at the proof that this Circuit requires to establish a successful 346 n.18. A contrary view, however, was expressed by the Section 1972 claim. Eleventh Circuit in Integon Life Ins. Corp. v. Browning, 989 F.2d 1143, 1150-51 (11th Cir. 1993), construing the identical

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language found in the Home Owners’ Loan Act, 12 U.S.C. positively impressed by such conduct, or even that the other § 1464(q). That court held that “to establish a tying in transaction was a factor in the bank’s decision to extend violation of HOLA, a plaintiff must prove that the thrift credit. According to the plain language of the statute, a forced or coerced the plaintiff into purchasing the tied claimant must prove that the purchase of the tied product or product.” Id. at 1151. service was a mandatory condition or requirement of obtaining a loan from the lender. The borrower must be Although we do not subscribe to the view set forth by the prevailed upon to agree to the additional product or service, Fifth Circuit, because it disregards the plain language of the lest credit be denied. statute, we likewise believe that emphasizing the notion of “coercion” creates a requirement that is not contained in the This element of a Section 1972 claim may be established by statute. Section 1972 does not require proof of “force or circumstantial evidence. However, the plaintiff in this case coercion,” particularly as those terms are used in the failed to offer admissible evidence from which an inference economic sense in antitrust jurisprudence. The terms of a tying arrangement could be drawn. The procedure that employed in the statute are “condition or requirement.” A led to the loan’s approval, although perhaps out of the “condition” is “[s]omething demanded or required as a ordinary, did not demonstrate that a tying condition was prerequisite to the granting or performance of something imposed. A reasonable person would not conclude that a else.” OXFORD ENGLISH DICTIONARY 309 (2d ed. 1989). A bank’s decision to lend $610,000 to an established bank “requirement” is “that which is called for or demanded; a customer, without a loan application or personal guarantee, condition which must be complied with.” Id. at 1565. Giving when the loan was secured by property appraised at $800,000 those terms their ordinary meanings as used in Section 1972, plus additional property valued at $90,000, was unusual or we conclude that a statutory violation is established by proof prompted by an ulterior motive. The evidence of the shadowy that a bank conveyed an intention to withhold credit unless dealings between Morriss and Bank Chairman Inman may be the borrower fulfilled a “prerequisite” of purchasing or relevant to the other litigation involving Morriss’ former furnishing some other product or service. The borrower may business partners, but it has little to do with any connection readily agree with the tying condition demanded by the bank; between the loan and the stock purchase. To the contrary, the that is, the whole notion of force or involuntary submission inference that emerges from this evidence is that the original may be absent. Nonetheless, proof of a statutory violation and subsequent loans were made to further another will be made out by evidence that taking or furnishing another conspiratorial objective allowing Morriss to usurp a business service or product is a condition that must be fulfilled before opportunity from his real estate venture, not as consideration the bank will agree to extend credit. for the purchase of FFC stock. Inman’s private dealings with other Bank customers does nothing to further the inference of In this case, Morriss agreed to purchase the Bank’s holding a tying arrangement involving the Bank, Morriss, and the company stock on behalf of Highland, and the buy order was plaintiff. Finally, the plaintiff’s banking expert, who testified reported to the loan committee in the first version of the Loan that “[t]here is no direct evidence, whatsoever, that there is – Officer’s Report. This evidence may establish that the Bank there was a requirement, as a condition of the loan, that he looked more favorably upon Highland because of the stock buy the stock,” Dep. of Frank DeLisi at 152, J.A. at 847, does purchase. It is not enough, however, merely to bring forth not furnish the necessary link that supports an inference of a evidence that the borrower purchased another bank product or tying arrangement. service to curry favor with the lender, or that the lender was

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III. The plaintiff’s argument that the Bank’s $610,000 loan was illegally tied to Highland’s purchase of FFC stock does not rise above the level of speculation or conjecture. Constructing a circumstantial case in the face of overwhelming, contrary, direct evidence was a daunting burden that, we believe, ultimately proved insurmountable for the plaintiff. The plaintiff failed to establish a genuine issue for trial on an essential element of its claim. We therefore affirm the district court’s summary judgment in favor of the defendant.