The Tenth Circuit Court of Appeals published its opinion in Niemi v. Lasshofer on Friday, September 6, 2013.
John Niemi and his investors set out to build a luxury ski condominium complex in Breckenridge, Colorado, in two phases, working through a set of companies controlled by Mesatex. But traditional financing proved hard to find: after completing the first phase of development they found no bank willing to loan the $220 million needed to finish the project. So they looked for alternative sources.
They found Michael Burgess. Mr. Burgess claimed to represent a European investor, Erwin Lasshofer, who Burgess said had $250 million to loan. All Mesatex had to do was to pay a $180,000 commitment fee and provide another $2 million as a collateral deposit. This Mesatex did, but the promised loan never materialized. Mr. Burgess found himself in federal prison serving time for fraud and money laundering.
The investors brought this lawsuit alleging that the lost loan ruined Mesatex’s business, caused it millions in lost profits, and sent its properties into foreclosure. But neither Mesatex nor any of its subsidiaries was included as a party to this lawsuit. Instead, the suit named only Mesatex’s investors as plaintiffs.
The district court granted the plaintiffs’ motion for a preliminary injunction, effectively freezing the worldwide assets of Mr. Lasshofer and the corporate defendants and ordering them to deposit $2.18 million in escrow pending a final judgment. It is this interlocutory order Mr. Lasshofer and the corporate defendants asked the Tenth Circuit to undo.
However, it was Mesatex that sought the loan, signed the loan application, and received the loan commitment. It was Mesatex’s subsidiaries that signed the loan agreement and its amendment, paid the loan fees, and advanced the loan collateral. It was those companies, too, that owned the Breckenridge properties and whose business allegedly suffered when the loan failed to materialize. Yet neither Mesatex nor any of its subsidiaries was named as a plaintiff in this lawsuit. Accordingly, plaintiffs lacked standing to proceed under Colorado state law, let alone to win a preliminary injunction.
Plaintiffs argued that they invested in Mesatex and its subsidiaries; they stressed, too, that they guaranteed some of the corporations’ loans. But it is long settled law that a shareholder or guarantor lacks standing to assert RICO claims when their losses are only derivative of a corporation’s when the individuals’ losses come about only because of the firm’s loss. And despite being challenged to do so in this appeal, the plaintiffs did not identify any direct and personal injury they suffered.
Accordingly, the preliminary injunction was VACATED and the case was REMANDED for further proceedings consistent with this opinion.