EASTERBROOK, Circuit Judge.
St. Joseph Bank & Trust Co. (the Bank) advanced $2.15 million in 1976 to enable St. Abbs, Inc., a holding company, to buy out Indiana Refrigerator Lines, Inc., a trucking company incorporated in Indiana. By 1978 Indiana Refrigerator Lines was in difficulty, with substantial debt outstanding to the Bank, and late in 1979 St. Abbs and the Bank began searching for a buyer. They found F. Ralph Nogg, an expert in trucking industry bailouts, who submitted a letter of intent to purchase St. Abbs and Indiana Refrigerator Lines (collectively IRL) on October 23, 1979.
Before closing, Nogg hired Dermott Noonan, a former Yale University accounting professor, to examine IRL. Noonan's eventual conclusion, reached in May 1980, was that IRL's finances were "in a chaotic condition" and that it had incurred "substantial overdrafts" on its accounts at the Bank. The extent to which Noonan apprised Nogg of these facts before Nogg completed his purchase of IRL on December 17, 1979, is not clear, but Nogg himself testified that he knew IRL was in serious trouble when he decided to purchase it.
The purchase took the form of an agreement between Nogg and the Bank that enabled Nogg to vote 77% of St. Abbs's stock: 52% owned by Nogg, and 25% owned by the Bank but subject to Nogg's control as trustee under an irrevocable 5-year voting trust. In return for the St. Abbs stock, the Bank agreed to invest $300,000 in IRL, and Nogg agreed to cause IRL to use the cash to repay its overdrafts at the Bank. The Bank also promised to indemnify Nogg to the extent any material discrepancies in IRL's financial statements turned out to exceed $169,000.
The minutes of the initial December 17, 1979, shareholders' meeting show that Nogg, inexplicably described as the sole shareholder, voted to elect a seven-member Board of Directors for both St. Abbs and Indiana Refrigerator Lines. Two of its members (Richard A. Rosenthal and Samuel Raitzin) also served on the Bank's Board of Directors. Nogg installed himself as Chairman and Chief Executive Officer of both St. Abbs and Indiana Refrigerator Lines.
Early in 1980 Nogg began negotiating on IRL's behalf with Yale Express, Inc., and its wholly-owned subsidiary Secon Service System, Inc., New York corporations operating as debtors-in-possession under Chapter XI,
The purchase agreement entitled Secon to 2% of the gross revenues of Indiana Refrigerator Lines for six years, with a minimum yearly payment of $80,000 guaranteed after the first year. In the event of insolvency of Indiana Refrigerator Lines, the operating authorities were to revert automatically to Secon, which protected its position by taking out a security interest in the authorities themselves. Indiana Refrigerator Lines assumed the "primary responsibility" for obtaining the ICC's approval of the transfer (a condition of the agreement), and promised to bear most of the costs of dealing with the ICC. A standard integration clause supported the Agreement's provision that: "No promises, representations, warranties, guarantees or agreements not herein contained shall have any force or effect".
By September 1980 Nogg had lost interest in the operating authorities and stopped trying to obtain the ICC's approval for the transfer. Still short of cash, and responding to the Bank's increasing reluctance to honor IRL's rubber checks (the Bank had been tolerating overdrafts even after the repayments made when Nogg purchased IRL), Nogg worked out a deal with the Bank that would have provided IRL with a $1.5 million capital contribution in return for transfer to the Bank of 60% of the common stock of St. Abbs. The September 22, 1980, Memorandum of Understanding memorializing this arrangement explained that an audit completed in June 1980 by Price Waterhouse at Nogg's behest revealed that IRL's financial situation was much worse than Nogg had thought, necessitating an infusion of money.
Immediately after signing the September 22 Memorandum, which would have given the Bank control of more than half of St. Abbs's common stock, Nogg decided that the recapitalization contemplated by the Memorandum wasn't worth the loss of his authority. He invoked the voting trust and forced St. Abbs's Board to repudiate the Memorandum. The Bank then agreed to an additional $500,000 loan and redemption of all of its St. Abbs shares in return for additional promissory notes and assurances of certain changes in IRL's financial practices. Raitzin and Rosenthal then resigned from the Boards of St. Abbs and Indiana Refrigerator Lines.
Despite the changes in IRL's financial practices, the Bank understandably continued to feel insecure, and on January 16, 1981, it filed a state court action in Nebraska (where Nogg had moved IRL's headquarters) to enforce its security interests in Indiana Refrigerator Lines' accounts receivable and other assets. St. Abbs and Indiana Refrigerator Lines responded by filing Chapter XI reorganization petitions.
Over the objections of Secon's counsel, the ubiquitous Mr. Wisehart, the bankruptcy court approved a plan that terminated all claims of IRL's creditors "whether ... based on allegations of equitable subordination, fraudulent conveyance, preferential treatment or nonvalidity of claims". Secon did not appeal the order approving the plan. Instead it filed a complaint in the Northern District of Indiana containing six claims against the Bank and four individual defendants. Subject matter jurisdiction was predicated on diversity of citizenship and on alleged violations of federal securities laws and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.
Secon asserted six claims against the Bank. In Secon's view, the Bank (1) acted as a joint venturer with IRL and therefore is liable for the latter's failure to complete the purchase of the operating authorities; (2) conspired together with IRL and others to defraud Secon (by knowingly misrepresenting or concealing IRL's financial condition in order to induce Secon to accept delayed payments for its operating authorities); (3) did defraud Secon (by not making the delayed payments); (4) promoted fraudulent conveyances of funds from IRL to itself, and breached fiduciary duties to both IRL and Secon; (5) engaged in securities fraud; and (6) committed RICO violations.
Before we get under way, a little housekeeping. Mr. Chodock seems to have lingered in this case almost accidentally. Originally accused of being Raitzin's son-in-law and "interfer[ing] with the day-to-day operations of St. Abbs and IRL despite the fact that he was wholly inexperienced and incompetent in transportation matters", Mr. Chodock escaped Secon's attention in this appeal.
Secon's first attempt to recover damages for breach of the purchase agreement came in the bankruptcy proceeding. There, the creditors' committee (chaired by Wisehart, as Secon's representative) proposed to resolve all disputes between IRL and the Bank in return for subordination of $850,000 of the Bank's secured claims against Indiana Refrigerator Lines. The proposal — dubbed a "Compromise Agreement" although not everyone agreed — provided:
The bankruptcy court's order approving the Compromise Agreement after a hearing under its cram-down power, 11 U.S.C. §§ 1124-29, echoed this provision:
Secon did not appeal. Nonetheless it now contends that the Bank used its influence (or "control") over IRL and Nogg to induce IRL to transfer cash to the Bank when IRL was insolvent, with intent to defraud IRL's other creditors, such as Secon.
The district court in this action concluded that Secon's fraudulent conveyance claim is an attempt to relitigate an issue that was decided in the bankruptcy court proceeding. We agree. The bankruptcy court's final judgment on the merits bars relitigation of the same claim between the same parties. Shaver v. F.W. Woolworth Co., 840 F.2d 1361, 1364 (7th Cir.1988); Miller v. Meinhard-Commercial Corp., 462 F.2d 358 (5th Cir.1972) (existence of a confirmed reorganization plan bars subsequent action by a creditor alleging fraud in the negotiation of the plan).
Secon insists it was not a creditor of Indiana Refrigerator Lines and therefore not a party to the bankruptcy proceeding. But it was a member of the creditors' committee in that proceeding, and it never requested any change in that status under 11
Next, Secon argues that because the Bank and IRL were joint fraudfeasors, it could choose whom to sue; and in fact it could not have litigated its fraudulent conveyance claim successfully against IRL in the bankruptcy proceeding because IRL had no money it could have recovered. This ignores the undisputed fact that IRL must have had sufficient assets to warrant the Bank's attempt to enforce its security interests. The bankruptcy court's order left $700,000 of the Bank's secured claim unsubordinated, an amount far exceeding the $400,000 guaranteed payment Secon could have obtained based on its purchase agreement (which guaranteed Secon a minimum of $80,000 per year for five years). Evidently the bankruptcy court thought IRL still had more than $400,000 in assets. Finally, Secon contends that the Bank controlled IRL — an issue to which we return — and by misusing that control breached its fiduciary duties to IRL's creditors. Even if these premises are accepted,
In exchange for its operating authorities, Secon was to receive payments partially dependent on IRL's gross revenues for six years. Secon reasons that this makes the operating authorities "securities" subject to the Securities Exchange Act of 1934. Secon claims the Bank committed fraud in connection with their sale, by misrepresenting or concealing IRL's financial condition, a fact material to Secon's decision to sell the authorities. The district court concluded that the operating authorities are not "securities", and both the wording of the Act itself and authoritative interpretations of it vindicate that decision.
"The term `security' means any note, stock, treasury stock, bond, debenture, certificate
Even the economic substance of the transaction fails to support Secon's contention that the operating authorities are securities. The Act's definition of "security" "seeks to confine the protection of the securities laws to investors and exclude from the Act's protection borrowers and lenders in commercial settings." Hunssinger v. Rockford Business Credits, Inc., 745 F.2d 484, 488 (7th Cir.1984). Thus, the salient characteristic of an "investment contract"-type security is that it establishes a "transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party". SEC v. Howey Co., 328 U.S. 293, 299, 66 S.Ct. 1100, 1103, 90 L.Ed. 1244 (1946). The same requirements apply to "certificate of participation"-type securities. Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 102 (7th Cir.1977). IRL did not expect profits solely from the efforts of Secon, nor did Secon solicit funds from other investors to whom it sold operating authorities or interests therein and pool them with funds from IRL, another prerequisite of an "investment contract". Milnarik v. M-S Commodities, 457 F.2d 274, 276-78 (7th Cir.1972). The operating authorities are not securities; their purchase was an ordinary extension of credit by Secon to IRL, a transaction outside the reach of the Act.
Secon's casual allusion in its reply brief to the profitsharing feature of the purchase agreement as a way for others to profit from IRL's efforts suggests that it might have been trying to suggest that the purchase agreement itself was a "security". This mirror image of Secon's original argument would have been more plausible: Secon "invested" its valuable operating authorities in the purchase agreement, expecting to reap a return from IRL's efforts. But in Marine Bank v. Weaver, 455 U.S. 551, 102 S.Ct. 1220, 71 L.Ed.2d 409 (1982), the Court refused to characterize a functionally identical undertaking as a "security". There the plaintiffs had pledged an FDIC-insured certificate of deposit as security for a loan to a business. In consideration for the guarantee, the owners of the business (a wholesale slaughterhouse) agreed to pay to the plaintiffs 50% of their net profits for the duration of the guarantee, and to allow the plaintiffs use of their barn and pasture. When the business failed, the lender made known its intention to claim the certificate of deposit, and the plaintiffs commenced a securities fraud action against the lender, arguing that the agreement was a "security". The Court disagreed, reasoning that "unusual instruments found to constitute securities in prior cases involved offers to a number of potential investors.... [A] security is an instrument in which there is `common trading.' ... Although the agreement gave the [plaintiffs] a share of the [business owners'] profits, if any, that provision alone is not sufficient to make that agreement a security." Id. at 559-60, 102 S.Ct. at 1225. Here, as in Marine Bank, the one-of-a-kind agreement between Secon and IRL has only one of the characteristics needed for a "certificate of participation"-type
Having disposed of the make-weight arguments, we come to Secon's real complaint: that the Bank tricked it into agreeing to sell its operating authorities to IRL on what amounted to a time payment plan by creating the impression that the Bank would continue to provide infusions of capital, should they be necessary to IRL's future profitability. Left with no way to investigate IRL's true financial situation, Secon reasonably relied on the Bank's continued support and suffered losses when IRL broke its contract, losses for which the Bank is responsible.
Because Secon cannot point to any statements the Bank made directly to it, this is in effect a request that the district court pierce IRL's corporate veil in Secon's favor, and not just to reach IRL's shareholders but to go all the way to its primary creditor, the Bank. But a corporation is not the same as its shareholders, In re Deist Forest Products, Inc., 850 F.2d 340, 341 (7th Cir.1988); or its affiliates, In re Xonics Photochemical, Inc., 841 F.2d 198, 201 (7th Cir.1988); and certainly it is not identical to its creditors. The district court properly rejected this theory.
The purchase agreement between Secon and IRL called for interpretation according to the laws of New York, so Secon first complains that the district court erred in applying Indiana law. Secon misunderstands the issue the district court faced. No one disputes that IRL welched on the purchase agreement, the question to which the choice-of-law clause applied. But Secon is suing the Bank, not IRL, and not simply for breach of contract. The question here is the who, not the fact, of liability. To reach the Bank, Secon needs the aid of principles having no contractual basis, and it depends on alleged oral agreements by the Bank to support IRL financially — agreements entered into before the purchase agreement was signed, and not referring to New York law. So the terms of the purchase agreement cannot control the choice of the law to be used in deciding whether to disregard them. A choice of law is necessary, Van Dorn Co. v. Future Chemical and Oil Corp., 753 F.2d 565, 570-71 (7th Cir.1985), but to assess the correctness of the district court's choice we must turn to ordinary choice of law rules rather than to the provisions of the purchase agreement.
Although Secon has pressed claims founded on federal law in this case, its breach of contact and fraud claims reached the district court primarily under its diversity of citizenship jurisdiction. In such cases the district court must apply the choice of law rules of the jurisdiction in which it sits, in this case Indiana. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941).
We have not found, and the parties have not cited to us, any Indiana decisions discussing choice of law when the plaintiff seeks to disregard the corporate entity to hold investors liable for their corporation's contractual obligations. We know, however, that Indiana courts would use Indiana choice of law rules rather than New York choice of law rules even if the substantive question involved the purchase agreement rather than other, oral agreements between the Bank and IRL and equitable principles allowing disregard of IRL's corporate status. Indiana & Michigan Electric Co. v. Terre Haute Industries, Inc., 507 N.E.2d 588, 597 (1st Dist.1987). The Indiana choice of law rule in contract cases is the "most intimate [i.e. significant] contacts" approach, under which the court considers the factors listed in the
Indiana recognizes the possibility of holding an investor liable on the theories Secon advances: joint venture, agency, and alter ego or instrumentality.
All of these theories are variations on an argument that the district court should have disregarded IRL's corporate status to reach the Bank as IRL's primary creditor. In the language of Indiana decisions, Secon argues that it produced sufficient evidence to create a genuine issue of material fact about whether IRL was the Bank's "alter ego", which would have required disregard of IRL's corporate status, so that the district court erred in granting the Bank's motion for summary judgment. Bearing in mind that this is only the first half of the battle for Secon (even if Indiana law would allow it to reach the assets of IRL's shareholders, it's making a claim against assets of a creditor of IRL), we turn to the question of liability of IRL's investors.
The general principle of investors' limited liability for the consequences of corporate acts developed in the United States during the early years of the nineteenth century, and despite occasional experiments with corporation statutes passing liability through to shareholders, by 1860 shareholders were protected against recovery by tort and contract claimants. Blumberg,
Analysis of the scope of these exceptions sometimes appears dominated by metaphor or epithet rather than by logic. Blumberg,
"Indiana courts are reluctant to disregard corporate identity and do so only to protect innocent third parties from fraud or injustice when transacting business with a corporate entity." Extra Energy Coal Co. v. Diamond Energy and Resources, Inc., 467 N.E.2d 439, 441-42 (3d Dist.1984). When must innocent third parties be protected? Courts in Indiana and elsewhere typically rely on long lists of factors, including such things as inadequate capitalization, disregard of corporate formalities, day-to-day control by shareholders, concentration of stock ownership, commingling of receipts, and so forth. See, e.g., Steven v. Roscoe Turner Aeronautical Corp., 324 F.2d 157, 161 (7th Cir.1963) (listing eleven factors gleaned from Indiana law, as noted in Van Dorn, 753 F.2d at 570, and Old Town Development Co. v. Langford, 349 N.E.2d 744, 777-78 (2d Dist.1976), transferred and dismissed as moot after settlement, 369 N.E.2d 404 (Ind.1977)); David H. Barber, Piercing the Corporate Veil, 17 Willamette L.Rev. 371, 374-75 (1981) (enumerating nineteen factors mentioned in cases from various jurisdictions). Indiana courts consider the same sorts of factors in both tort and contract cases. Such an approach, requiring courts to balance many imponderables, all important but none dispositive and frequently lacking a common metric to boot, is quite difficult to apply because it avoids formulating a real rule of decision. This keeps people in the dark about the legal consequences of their acts, a result that is bad enough in one-of-a-kind fact situations like torts but that is surely worse in situations like this, where the unknowable "rule" may affect every contract any Indiana corporation may undertake. See Secretary of Labor v. Lauritzen, 835 F.2d 1529, 1539-40 (7th Cir.1987) (concurring opinion).
Ordinarily the price of this sort of approach is commitment of the decision to the finder of fact, id. at 1539, so that summary judgment would be inappropriate,
The peculiar chumminess of the principal actors in this case gave Secon a better opportunity to demonstrate the Bank's control of its debtor than most disappointed creditors receive. The Bank contends that Nogg, as one of Secon's principal creditors, might benefit from its victory in this action. Perhaps for this reason, instead of claiming independence as an ordinary owner
Despite conditions that should have facilitated a demonstration of the Bank's control, if such existed, Secon's analysis contains a hole big enough to accommodate one of IRL's semitrailers. In late September 1980, only three months after the Bank "forced" Nogg into the Secon deal, Nogg was able to repudiate an already-signed refinancing arrangement with the Bank that would have placed in its hands a majority of St. Abbs's stock. At the same time, he engineered the resignation of Rosenthal and Raitzin from the Boards of Directors of St. Abbs and Indiana Refrigerator Lines, and redeemed the 25% of St. Abbs's stock the Bank owned. Only a period of worsening financial troubles separated this shakeup from the purchase of the operating authorities; surely these troubles would have strengthened rather than weakened any hold the Bank had over IRL in June. Secon ignores these key events, denying us the benefit of any explanation for them bar the obvious one: that the Bank never controlled IRL. No other inference is reasonably possible.
Secon contends that it was unfairly surprised by the district court's holding that the Bank didn't control IRL; Secon thought the Bank's control so self-evident as to be uncontested. We find this unconvincing. In Secon's view control is the only fact it needs to prove in order to enable the district court to disregard IRL's corporate existence. Thus Secon's contention that the district court's ruling on that issue took it by surprise amounts to a claim that it expected the district court to ignore all evidence, no matter how overwhelming, that is inconsistent with its counsel's conclusory factual assertions about an element essential to its case. This is not the meaning of Fed.R.Civ.P. 56(c). Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).
Even if we were to ignore the events of September 1980 and accept that the Bank controlled IRL, Indiana law would not leave us any way to disregard IRL's corporate status. If control alone were sufficient, there would be no meaningful distinction between affiliated corporations; yet Indiana courts recognize their separateness. See, e.g., Extra Energy; Burger Man, Inc. v. Jordan Paper Products, Inc., 170 Ind.App. 295, 352 N.E.2d 821 (1st Dist.1976). Shareholder or parent corporation control is only one of the elements required, and Secon's only other evidence is the fact that the Bank eventually stopped throwing good money after bad and chose to enforce its security interests. In contract cases Indiana courts always have required more than control to pierce the corporate veil for the benefit of contract creditors like Secon, leading to disregard of the corporate entity only in such situations as State v. McKinney, 508 N.E.2d 1319, 1321 (3d Dist.1987) (the sole shareholder commingled corporate funds with his own and failed to engage an attorney to represent the corporation, as required by Indiana law); General Finance Corp. v. Skinner, 431 N.E.2d 526 (1st Dist.1982) (the corporation used the same firm name as its parent or sole shareholder); Clarke Auto Co. v. Fyffe, 124 Ind.App. 222, 116 N.E.2d 532 (1954) (same); Urbanational Developers, Inc. v. Shamrock Engineering, Inc., 175 Ind.App. 416, 372 N.E.2d 742 (3d Dist.1978) (the subsidiary never had any assets at all, never paid any taxes, and its books were completely blank); and Burger Man (the parent made the contract creditor an explicit promise to support the subsidiary). There is an excellent reason for requiring something more than control: unless the corporation engaged in some practice that might have misled its contract creditors into thinking they were dealing with another
Secon does not claim it was deceived into thinking the Bank was in the trucking business. Indeed it could not plausibly do so, because federal law forbids banks to engage in all but a few non-banking activities, see, e.g., 12 U.S.C. §§ 24, 1843 and 1863, and carrying meat and potatoes is not among them. Nor can Secon deny it knew it was dealing with IRL, when its chief negotiator, Wisehart, had served on the Board of Indiana Refrigerator Lines before its purchase of the operating authorities and was privy to IRL's continuing difficulties in obtaining adequate capital. Secon admitted that it knew IRL could not afford any up-front payment for the operating authorities. Secon's designated representative, Bertram J. Smith, said in Secon's deposition: "I asked Mr. Nogg whether IRL intended to put up any front money. He pointed out that the start-up costs would be high and that they didn't intend that." Secon's evidence boils down to incredible allegations of control coupled with failure to recapitalize. We have rejected the former, and we are unaware of any decision relying on undercapitalization alone as grounds for disregarding the corporate entity in a contract case. See William P. Hackney and Tracey G. Benson, Shareholder Liability for Inadequate Capital, 43 U.Pitt.L.Rev. 837, 885 (1982). Moreover undercapitalization, when considered at all, is evaluated with emphasis on the time of incorporation rather than thereafter. See, e.g., Consumer's Co-op, 419 N.W.2d at 218-19; DeWitt Truck Brokers v. W. Ray Flemming Fruit Co., 540 F.2d 681 (4th Cir.1976). A requirement to provide continuing capitalization, as Secon urges, probably would injure noncontrolling creditors, rather than helping them, by precipitating unnecessary forced sales. See Robert C. Downs, Piercing the Corporate Veil — Do Corporations Provide Limited Personal Liability?, 53 UMKC L.Rev. 174, 186-89 (1985). Moreover, it would increase the cost of credit, which would especially hurt start-up firms, a major source of innovation and competition.
Secon originally presented its argument in the form of a claim that the Bank and IRL were "joint adventurers" liable for each other's debts. "A joint venture is an association of two or more persons formed to carry out a single enterprise for profit". Boyer v. First National Bank of Kokomo, 476 N.E.2d 895, 897 (Ind.App. 4th Dist.1985). Such an association may be inferred from conduct. Lafayette Bank, 440 N.E.2d at 762. "A joint venture exists when an express or implied contract providing for (1) a community of interests, and (2) joint or mutual control, that is, an equal right to direct and govern the undertaking, binds the parties to such agreement.... The joint venture must provide for sharing of profits but it need not distribute them equally." Boyer, 476 N.E.2d at 898. Secon contends that the Bank controlled Nogg, and through him IRL; the district court found that, as IRL's creditor, the Bank shared profits "indirectly". But these facts do not establish a joint venture. Secon insists that "[t]he Bank's position as a chief lender to IRL and to Mr. Nogg as well, coupled with its representation on IRL's Board of Directors and control over the corporate funds ... effectively put the Bank in control of IRL for all purposes" "(emphasis added); "[t]he Bank was effectively
Even if Secon had established that the Bank enjoyed an "equal right" to control IRL's use of the operating authorities, we doubt whether the "indirect" sharing of profits (in the form of repayment of loans on a fixed schedule) would constitute the sort of profit sharing required for a joint venture. A creditor who contributes capital and secures his contribution with a note can be a joint venturer, but only "[w]here it is the intent of the parties for all co-venturers to be subject to the risks of the business". Boyer, 476 N.E.2d at 898. Creditors are not residual claimants; they are not normally regarded as "subject to the risks of the business" in the sense owners suffer those risks. Uncontradicted evidence in this case reveals that the Bank took virtually every step open to it in an effort to reduce or eliminate its exposure to the risk of IRL's insolvency. In fact, this dispute arose from the Bank's successful invocation of one such risk-avoidance mechanism: its security interests in IRL's accounts receivable and other assets. Nothing could be further from an intent to share the risks of IRL's business, something the Bank was forbidden to do anyway. See Atlanta Shipping Corp. v. Chemical Bank, 631 F.Supp. 335 (S.D.N.Y.1986), aff'd, 818 F.2d 240 (2d Cir.1987); Cantieri Navali Riuniti v. M/V Skyptron, 621 F.Supp. 171 (W.D.La.1985), aff'd, 802 F.2d 160 (5th Cir.1986).
Secon also tries to make IRL out as the Bank's agent. Indiana recognizes three forms of agency relationships: actual agency, apparent agency, and agency by estoppel. Hope Lutheran Church v. Chellew, 460 N.E.2d 1244, 1247 (1st Dist.1984). Secon does not explain which of these theories it is advancing. It cites the
Apparent agency requires control by the principal, acquiescence by the agent, and a "manifestation ... made by the principal to a third party who in turn is instilled with a reasonable belief that another individual is an agent of the principal.... [S]tatements made by the agent are not sufficient to create an apparent agency relationship." Hope Lutheran Church, 460 N.E.2d at 1248. Estoppel additionally requires false representations of material facts by the principal with an intent to induce reliance by the third party, coupled with a resulting actual change in the third party's position. Kokomo Veterans, Inc. v. Schick, 439 N.E.2d 639, 643 (3d Dist.1982).
Possibly because of the obscurity of Secon's pleadings, the district court did not directly address the Bank's potential liability as IRL's agent apart from Secon's fraud claims. On appeal, Secon incorrectly contends that control alone is sufficient to create an agency under § 140 of the
Secon contends the Bank did make direct statements to it, promising to support IRL. It cites an extraordinary deposition in which Wisehart examined Nogg about statements Rosenthal, the Bank's Chairman and CEO, made in negotiations leading up to Nogg's purchase of IRL in 1979.
This conversation took place before Wisehart doffed his IRL hat — at the time, he was a prospective Board member of IRL. Certainly he was not then acting in his later role as Secon's counsel (he did not resign from the Boards of St. Abbs and Indiana Refrigerator Lines in order to take up that role until January 1980), so whatever Rosenthal said to him at this meeting was not a representation to Secon.
Without explaining the basis of its conclusion, the district court noted that "[t]here is evidence that reasonably leads to the inference that promises of future financial support were made by the Bank." Apparently this referred to statements the Bank made to Nogg, or to Nogg and Wisehart while Wisehart was not wearing his Secon hat. These statements are irrelevant to the question of IRL's apparent authority because they were not made to Secon. Anyway, Nogg's previously-quoted description of these statements, the only information available about them, certainly does not suggest the Bank promised anything more than to consider future IRL loan requests on their merits. There was no promise of support come hell or high water, either by Rosenthal or Nogg (Smith said Nogg only "assured [Secon] there would be working capital"). We doubt that such statements could vest IRL with apparent authority, because a reasonable person in Secon's position would not have relied on them in light of the disclaimer in the purchase agreement itself. See Industrial Dredging & Engineering Corp. v. Southern Indiana Gas & Electric Co., 840 F.2d 523 (7th Cir.1988) (Indiana law respects written, contractual allocations of risk). Secon does not even discuss this provision of the purchase agreement, let alone offer any reason why the parol evidence rule should be disregarded to allow introduction of evidence controverting it. The district court's conclusion that IRL was not the Bank's agent was correct.
There is little of substance to Secon's remaining complaints. Second claims the Bank defrauded it by projecting a false impression that IRL would remain solvent. If the Bank made any such representations, they were only predictions, and in Indiana "fraud is a material misrepresentation of past or existing facts ... which cause reliance upon those representations to the detriment of the person so relying." Vaughn v. General Foods Corp., 797 F.2d 1403, 1411 (7th Cir.1986) (emphasis added). Despite an opportunity to plead the facts underlying this claim more explicitly, as Fed.R.Civ.P. 9(b) requires, the only representation by the Bank to Secon that the latter has documented occurred at the December 1979 conference with Wisehart, who was not acting for Secon at the time. Given Secon's written admission in the purchase agreement itself that it was not relying on any promises outside the agreement, which makes the remarks non-material, the Bank's remarks in December 1979 certainly are no more than "a scintilla of evidence" insufficient to defeat the motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).
On appeal, both Secon and the Bank devote a great deal of attention to dealings between the Bank and Nogg associated with Nogg's initial decision to purchase IRL. We pass over this evidence, including the dispute about the significance of the
Because Secon hasn't proved the Bank committed any of the required predicate acts, the RICO complaint must be dismissed too. 18 U.S.C. § 1961(5). It was fatally defective anyway, because it was grounded solely on the sale of the operating authorities, and a single, isolated transaction does not satisfy the RICO requirement of a "pattern" of racketeering activity. Skycom Corp. v. Telstar Corp., 813 F.2d 810, 818 (7th Cir.1987).