Opinion
Case No. 1:14-cv-20368-KMM
12-08-2014
HSI CHANG, aka MARK CHANG, Plaintiff, v. JPMORGAN CHASE BANK, N.A., Defendant.
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
THIS CAUSE came before the Court upon the Motion by Defendant JPMorgan Chase Bank, N.A. ("Defendant") to Dismiss (the "Motion") (ECF No. 26) Plaintiff Hsi "Mark" Chang's ("Plaintiff") First Amended Complaint (the "Amended Complaint") (ECF No. 15). Plaintiff Responded (ECF No. 28) and Defendant Replied (ECF No. 30). The Motion is therefore ripe for review. The Court's determination also requires analysis of Plaintiff's Motion for Leave to File Second Amended Complaint (ECF No. 29), Defendant's Response (ECF No. 31) to that Motion, Plaintiff's Reply (ECF No. 32) to that Motion, and Plaintiff's Proposed Second Amended Complaint (ECF No. 29-1). UPON CONSIDERATION of each of the aforementioned filings, and being otherwise fully advised in the premises, the Court enters the following Order GRANTING Defendant's Motion.
I. BACKGROUND
This action arises from a wire fraud scheme perpetrated by Charles C. Gordon ("Gordon") wherein Gordon (1) induced Plaintiff to deposit $750,000 (the "Deposit") into an account at Defendant's bank, and then (2) immediately withdrew and misappropriated the Deposit for his personal use. Am. Compl. ¶¶ 1, 19f. To effectuate his scheme, Gordon established three accounts at Defendant's Bank for sham business entities, OPT Title & Escrow, Inc. ("OPT Title") and Ziggurat, Inc. ("Ziggurat"). Id. ¶ 3. He established a primary checking account (the "Primary Account") and two associated accounts, one checking and one savings. See id., Ex. A (ECF No. 15-1) at 2. Gordon was the president of each business entity and was authorized to transact in each of the aforementioned associated accounts. See id., Ex. A at 12-17; Second Am. Compl., Ex. B at 54-61. He titled the Primary Account "OPT TITLE & ESCROW INC ESCROW ACCOUNT," and used the associated savings account as a purported escrow account ("The Escrow Account") to carry out the fraud as further described below. See Am. Compl. ¶ 18, Ex. A at 2.
Gordon falsely advertised Ziggurat as an entity "engage[d] 'in the business of providing financing, loans and collateralizing financial instruments.'" Id. ¶ 17. As a sham prerequisite to Ziggurat providing multi-million dollar loans, Ziggurat required its unsuspecting clients to deposit into the Escrow Account, which belonged to OPT Title as Ziggurat's purported escrow agent, up to $750,000 as proof of liquidity. Id. ¶¶ 3, 17. In this way, Gordon convinced Plaintiff to make a $750,000 Deposit, but "immediately misappropriated [the Deposit]" by fraudulently diverting the funds to the Primary Account for his personal use. Id. ¶¶ 1, 19f, Ex. A at 9. Gordon never held the Deposit in escrow, never intended to use it as a legitimate proof-of-liquidity deposit, and never extended any loan. Id. ¶¶ 1, 19f. Using this model, Gordon defrauded five victims of an amount totaling at least $3.6 million. Id. ¶¶ 2, 19f. Generally, Defendant was unaware Gordon was perpetrating fraud via the Escrow Account, and specifically, Defendant was unaware of the fraudulent escrow agreement and proof-of-liquidity requirement Gordon used to defraud Plaintiff. See generally Am. Compl.
The federal government eventually indicted Gordon for wire fraud, to which he pled guilty, admitting specifically to defrauding Plaintiff of $750,000. Id. ¶¶ 2, 19h.
Plaintiff amended his original Complaint once as a matter of right. His Amended Complaint alleges four claims against Defendant: (1) negligence; (2) gross negligence; (3) aiding and abetting fraud; and (4) aiding and abetting conversion. Plaintiff seeks to hold Defendant liable for negligently allowing Gordon to defraud Plaintiff of $750,000, and for aiding and abetting Gordon's fraud. As to the negligence claims, Plaintiff's theory is that Defendant "knew" that Gordon was perpetrating a fraud because he titled the Primary Account "ESCROW ACCOUNT," though it was actually a checking account, and yet Defendant failed to monitor Gordon's transactions and took no action to safeguard the Deposit which it "knew" was "immediately misappropriated" by Gordon. Id. ¶¶ 47-51. As to the aiding and abetting claims, Plaintiff's theory is that Defendant either "substantially assisted" Gordon's fraud by (1) "permit[ing] Gordon to open and maintain . . . [the Escrow Account]" while Defendant "knew" that Gordon was misappropriating funds, or alternatively, (2) "knowingly permit[ing] [Gordon] to falsely represent that [he] had a legitimate 'escrow account at [Defendant's Bank].'" Id. ¶ 63.
In response, Defendant filed the instant Motion arguing Plaintiff's claims must be dismissed because Plaintiff fails to plead key elements of each claim. Defendant argues as to the negligence claims that Plaintiff fails to properly allege Defendant had "actual knowledge" that Gordon was perpetrating a fraud at the time he transferred the Deposit. See Mot. to Dismiss at 9-11. Instead, Defendant argues, Plaintiff points only to Gordon's "red flag" transactions as an authorized accountholder and therefore baselessly concludes that Defendant knew Gordon was defrauding Plaintiff. See id.; Def.'s Reply to Mot. to Dismiss at 4-9. As to the aiding and abetting claims, Defendant argues Plaintiff fails to properly allege (1) that Defendant "actually knew" of Gordon's fraud, and (2) that Defendant "substantially assisted" Gordon's fraud. See Mot. to Dismiss at 13-18.
II. LEGAL STANDARD
To survive a 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The Court accepts all factual allegations as true and construes them in the light most favorable to the plaintiff. Quality Foods de Centro Am., S.A. v. Latin Am. Agribusiness Dev. Corp., S.A., 711 F.2d 989, 995-96 (11th Cir. 1983). However, conclusory allegations are not accepted as true, Iqbal, 556 U.S. at 681; thus, a complaint that offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action" without "further factual enhancement" is not sufficient to state a plausible claim. Id. at 678. A claim survives a motion to dismiss only if the well-pleaded factual allegations accepted as true "plausibly give rise to an entitlement to relief." Id. at 679; Resnick v. AvMed, Inc., 693 F.3d 1317, 1326 (11th Cir. 2012).
Deciding whether allegations state a plausible claim is "a context-specific task" requiring a court to "draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679. Thus, as one example, a court may dismiss a claim as implausible where the alleged conduct is more likely explained by lawful behavior than by wrongdoing. Wiand v. Wells Fargo Bank, N.A., 938 F. Supp. 2d 1238, 1243 (M.D. Fla. 2013) (discussing Twombly, 550 U.S. at 567).
Claims alleging fraud are subject to the heightened pleading standard set out in Federal Rule of Civil Procedure 9(b). To "alleg[e] fraud . . . a party must state with particularity the circumstances constituting the fraud or mistake." Fed. R. Civ. P. 9(b). Certain elements in a fraud claim, such as "malice, intent, knowledge, and other conditions of a person's mind," may be alleged generally. Id. Rule 9(b)'s particularity requirement is met where the complaint sets forth: (1) precisely what statements or omissions were made in what documents; (2) the time and place of each statement or omission and the person responsible for each; (3) the substance of the statement and how it misled the plaintiff; and (4) the defendant's gain due to the alleged fraud. Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1371 (11th Cir. 1997).
III. DISCUSSION
On the whole, Plaintiff's Complaint is replete with legal conclusions masked as factual allegations. This pleading tactic neither bolsters the plausibility of Plaintiff's claims nor aids the Court in its analysis of the same. Nevertheless, it is the Court's duty to wade through Plaintiff's allegations - both those that are conclusory and those that are not - in order to fairly and accurately assess the plausibility of Plaintiff's claims. For the below reasons, the Court finds that each of Plaintiff's claims is inadequately pled and must therefore be dismissed.
A. Count I - Negligence
"To maintain an action for negligence, a plaintiff must establish that the defendant owed [him] a duty, that the defendant breached that duty, and that this breach caused the plaintiff damages." Wiand, 938 F. Supp. 2d at 1247 (citing Fla. Dep't of Corrs. v. Abril, 969 So. 2d 201, 204 (Fla. 2007)).
1. A bank's duty to a non-customer
Banks owe a duty of care to their customers. Id. On the other hand, banks generally do not owe a duty to non-customers. Id. (citing MLSMK Inv. Co. v. JP Morgan Chase & Co., 431 Fed. App'x 17, 20 (2d Cir. 2011)); see Carl v. Republic Security Bank, 282 F. Supp. 2d 1358, 1372 (S.D. Fla. 2003). Thus, as applied to a non-customer's negligence claim based on the underlying fraud of a bank's customer, a "bank[] generally do[es] not owe [a] non-customer[] a duty to protect [hi]m from fraud perpetrated by a[] customer[]." Wiand, 938 F. Supp. 2d at 1247.
There is a narrow exception however. Courts will find a duty owed to a non-customer where a bank receives "clear evidence of misappropriation" and "fails to act to safeguard trust funds on deposit in a fiduciary account." Id. The Fifth Circuit helpfully deconstructs this exception into three elements: (1) there must be a fiduciary relationship between the customer and non-customer; (2) the bank knows of or ought to know of the fiduciary relationship; and (3) the bank has "actual knowledge" or notice that a misappropriation of funds is occurring or is about to occur. Id. at 1247-48 (citing Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 232 (5th Cir. 2010)). As to the third element, only actual knowledge or willful ignorance of an actual misappropriation will trigger liability. Id. (citing Atlanta & St. A.B. Ry. Co. v. Barnes, 95 F.2d 273, 276 (5th Cir. 1938)). Pleading that a bank should have noticed the underlying fraud is insufficient to plead "actual knowledge." See id.
In this case, Plaintiff is not and was not a banking customer of Defendant. Thus, Defendant would owe him no duty of care unless he shows the above-described exception applies. The Court focuses its analysis on the exception's third element, as it is dispositive of Plaintiff's claim. In short, Defendant had no actual knowledge of Gordon's fraudulent misappropriation at the time it occurred, nor was Defendant willfully ignorant of it.
With great effort, Plaintiff asserts repeatedly that the Deposit was a "special deposit" under Florida law, and that Defendant therefore owed Plaintiff a duty of care as a non-customer. See Am. Compl. ¶¶ 1, 3, 7, 21, 24-25, 31, 33, 47-51, 53, 73; Pl.'s Resp. to Mot. to Dismiss at 7, 10, 13-18. To be sure, Plaintiff's argument only distracts from the relevant analysis, as it has no basis or support in any caselaw. Thus, rather than straying unnecessarily from the relevant analysis to address Plaintiff's "special deposit" argument comprehensively, the Court notes only that the caselaw Plaintiff cites does not support his proposition: that a non-customer can unilaterally create a special deposit or trigger a fiduciary duty on the part of a bank simply by wiring funds into a customer's account pursuant to an escrow agreement of which the bank has no knowledge. The caselaw Plaintiff cites has no application to the facts of this case. See Pl.'s Resp. to Mot. to Dismiss at 13-17. Accordingly, the Court analyzes the question of whether Defendant owed Plaintiff a duty of care under the "clear evidence of misappropriation" exception.
Defendant argues Plaintiff's allegations are conclusory and baseless, derived only from the fact that Defendant was aware that Gordon made transactions in and out of the Escrow Account, an account in which he was authorized to transact. Mot. to Dismiss at 9-11. That Defendant knew of authorized transactions, Defendant argues, is far from knowing the transactions were actually fraudulent misappropriations.
Plaintiff advances four arguments in response, which the Court next addresses in turn.
First, Plaintiff argues that Defendant had actual knowledge that Gordon intended to or did misappropriate the Deposit because Defendant "knew" that the Escrow Account was not authorized to accept liquidity deposits. Pl.'s Resp. to Mot. to Dismiss at 16. Plaintiff does not support this conclusory inference with any allegations in the Amended Complaint.
This argument fails, specifically, because Plaintiff fails to allege that Defendant was aware of: (1) the underlying escrow agreements Gordon used to defraud his unsuspecting clients; (2) Gordon's proof-of-liquidity requirement, much less its fraudulent nature; (3) the fact that any of the deposits or wire transfers into the Escrow Account were intended by their transferors as liquidity deposits to be held in escrow; nor (4) the terms or conditions the transferors expected to be satisfied before their deposits could be released.
Second, and related to Plaintiff's first argument, Plaintiff contends that Defendant actually knew that Gordon misappropriated the Deposit because when Defendant accepted the Deposit, it "knew" the Deposit had to be held in escrow and could not be withdrawn by Gordon (1) because the Primary Account was titled "ESCROW ACCOUNT" and (2) because Plaintiff attached special instructions expressly marking the Deposit an escrow deposit. Thus, Plaintiff argues, when Gordon withdrew the "escrowed" funds, Defendant immediately knew the Deposit had been misappropriated. Pl.'s Resp. to Mot. to Dismiss at 10, 14.
In support of the argument that the title "ESCROW ACCOUNT" means Defendant knew any funds transferred by Gordon from the Escrow Account and into the Primary Account were fraudulently misappropriated, Plaintiff alleges that Defendant "knew that . . . Gordon [was] perpetrating a fraud by falsely representing to third parties that the account was an Escrow Account when in fact it was not." Am. Compl. ¶¶ 47, 48.
This inference is conclusory and implausible. It fails to allege that Defendant had actual knowledge of an actual misappropriation, and is instead most consistent with Defendant understanding and treating the Primary Account and Escrow Account as the checking and savings accounts it was legally obligated to Gordon to treat them as. While it is true the Primary Account was titled "ESCROW ACCOUNT," it is apparent from Plaintiff's allegations and Exhibit A (the accounts' statement) that this did not change the fact that the three associated business accounts operated as and were understood by Defendant as two checking accounts and a savings account. See Am. Compl., Ex. A at 2 ("Consolidated [Account] Summary . . . Checking & Savings [Accounts] . . . Chase BusinessClassic [Primary Checking Account] . . . Chase BusinessClassic [Checking Account] . . . Chase Business Select High Yield Savings [Account]"), 3 ("Balancing Your 'Checkbook'"), 5 ("Checking Summary"), 6 (statement of "ATM & Debit Card Withdrawals"), 8 (denoting specifically the purported Escrow Account as "Chase Business Select High Yield Savings"), 9 (statement showing authorized wire transfers into and online transfers out of the Escrow Account).
Even assuming arguendo Defendant understood the Escrow Account as one from which funds could not be withdrawn freely or as one into which all deposits, including wire transfers, were necessarily escrow deposits, Defendant's understanding of the account as an escrow account would not necessarily mean Defendant actually knew that Gordon was misappropriating funds or that his titling of the account meant he intended to misappropriate funds. Gordon was authorized to transact in the accounts as the business entities' president. See O'Halloran v. First Union Nat. Bank of Fla., 350 F.3d 1197, 1205 (11th Cir. 2003) ("[A] bank . . . has the right to assume that individuals who have the legal authority to handle the entity's accounts do not misuse the entity's funds . . . The bank is responsible only for making sure that the [withdrawer], at the time of the withdrawal, has the authority to make withdrawals on behalf of the accountholder entity."). That he did so did not give Defendant actual knowledge that any one or all of his transfers from the Escrow Account were misappropriations. Rather than showing that Defendant "knew that OPT Title and Gordon were perpetrating a fraud by falsely representing to third parties that the Account was an Escrow Account . . ." and that any funds transferred between the accounts were therefore misappropriated, Am. Compl. ¶¶ 48-49, Plaintiff's allegations more plausibly plead that Defendant understood and treated the three accounts as "Checking & Savings" accounts in which Gordon was authorized to transact. See Wiand, 938 F. Supp. 2d at 1243 (stating a court may dismiss a claim as implausible where the alleged conduct is more likely explained by lawful behavior than by wrongdoing).
As to the special instructions which supposedly let Defendant know the Deposit must be held in escrow and therefore could not be withdrawn or transferred to Gordon's other accounts, Plaintiff simply mischaracterizes the facts. Plaintiff alleges he included with the Deposit the instruction that it be considered an "Escrow deposit for Point Hardy-Raffles St. Lucia Project financed by Ziggurat Inc." Am. Compl. ¶¶ 3, 7. Plaintiff argues he thereby "expressly designated [it] as a special escrow deposit for the benefit of Point Hardy." Id. ¶¶ 47-49. However, the entry on the bank statement Plaintiff cites to cryptically reads only: "Mr. Hsi Chang Aka Mark Chang . Ref: Chase Nyc/Ctr/Bnf=Opt Title & Escrow Inc Escrow Sunrise, FL 333232875/Ac-0000000029267 Rfb=QB Ew Bk Smrino Obj=Esc Deposit for Point Haimad . . . ." Id. ¶ 31, Ex. A at 9. No person reading this entry would conclude that the wire transfer expressly instructed that the funds could only be released or transferred "for the benefit of Point Hardy" - a phrase which does not appear.
Point Hardy is the luxury golf resort in which Plaintiff intended to invest by way of his liquidity deposit. --------
Nevertheless, even if the Court accepts as true the otherwise unsubstantiated allegation that Plaintiff included an express instruction that the Deposit could only be released "for the benefit of Point Hardy," Defendant only knew that Gordon, who was authorized to use the account, transferred the funds out of the Escrow Account and into the associated checking account. See id., Ex. A at 9. At most, this would show that Defendant was aware of what it thought was an escrow transaction which, upon closer inspection, would have appeared atypical.
However, an atypical transaction is not clear evidence of misappropriation and does not show that Defendant actually knew Gordon had misappropriated the funds - he was authorized to transact in both accounts and the accounts belonged to what appeared to be a legitimate business. See Wiand, 938 F. Supp. 2d at 1248 (stating that alleging a bank should have discovered the underlying fraud is not sufficient to allege actual knowledge of the underlying fraud); see also O'Halloran, 350 F.3d at 1205 ("[A] bank . . . has the right to assume that individuals who have the legal authority to handle the entity's accounts do not misuse the entity's funds . . . ."); Lawrence v. Bank of America, N.A., 455 Fed. App'x 904, 907 (11th Cir. 2012) (stating that alleging atypical transactions occurred is insufficient to trigger a bank's liability because noticing the atypical nature of transactions is not actual knowledge of fraud). In short, neither the title "Escrow Account" nor Plaintiff's alleged special instructions gave Defendant actual knowledge that Gordon's transfers from the Escrow Account were actually fraudulent misappropriations.
Third, Plaintiff argues Defendant knew that Gordon misappropriated the Deposit because Defendant knew that Gordon immediately transferred a corresponding $750,000 out of the Escrow Account and into the Primary Account. Pl.'s Resp. to Mot. to Dismiss at 16. In support, Plaintiff alleges "[Defendant] knew that the [Deposit] w[as] immediately misappropriated by transfer out of [the Escrow Account] into [the Primary Account] from which [] [the Deposit] w[as] soon disbursed" for Gordon's personal use. Am. Compl. ¶¶ 48-49.
This argument fails because it only conclusorily infers that Defendant knew the Deposit had been misappropriated and ascribes knowledge where Defendant had none. As stated previously, Defendant was aware that on the same day that Plaintiff wired the Deposit into the Escrow Account, Gordon transferred the same $750,000 amount from the Escrow Account to the Primary Account. See Am. Compl., Ex. A at 9. However, where (1) Gordon was authorized to transact in both accounts, (2) the accounts were associated and were held by the same business entity, and (3) the accounts were checking and savings accounts between which transfers are typically routine, the transfer between the accounts was not clear evidence of misappropriation nor did it make Defendant actually aware that Gordon had defrauded Plaintiff.
This point is perhaps made clearer by recalling that Defendant was unaware of the purported escrow agreement between Plaintiff and Gordon, and the sham proof-of-liquidity requirement, and the fact that Plaintiff believed his Deposit would be held by Gordon in escrow pending the closing of a loan about which Defendant had no knowledge. To Defendant, Plaintiff's Deposit was nothing other than a run-of-the-mill wire transfer, and Gordon's transfer between accounts was nothing other than a routine transfer made by an authorized accountholder between a business's associated savings and checking accounts. The argument that Defendant knew that Gordon had defrauded Plaintiff simply because Defendant was aware of an authorized transaction is conclusory and insufficient to plead actual knowledge. The essence of Plaintiff's allegations is that Defendant should have noticed the transactions were atypical, "yet . . . took no action to safeguard the [Deposit]." Am. Compl. ¶ 49. However, as previously noted, pleading that a defendant should have known atypical transactions were actually fraudulent is insufficient to allege actual knowledge of fraud. See Wiand, 938 F. Supp. 2d at 1248; Lawrence, 455 Fed. App'x at 907.
Fourth, Plaintiff argues that Defendant knew Gordon was defrauding Plaintiff because Defendant sent two "false" correspondences intended to lull Plaintiff into believing his Deposit had not been misappropriated. Pl.'s Resp. to Mot. to Dismiss at 16-17; Am. Compl. ¶ 51. Defendant necessarily had to know of the fraud in order to intentionally conceal it.
Gordon defrauded Plaintiff of his $750,000 Deposit the same day Plaintiff wired the funds, on February 16, 2010. After several escrow extensions, Gordon had not returned Plaintiff's Deposit pursuant to the purported escrow agreement, so Plaintiff "sought direct assurance from [Defendant] that OPT Title had sufficient funds to return his $750,000 should the Ziggurat [loan] fail to close." Am. Compl. ¶ 34. Plaintiff fails to allege the content of his request for assurance, but Defendant responded on October 11, 2010, as follows:
This is to inform that OPT Title . . . is currently a client of our banking institution, and has maintained a satisfactory relationship with our bank since September 17, 2009 . . . OPT Title . . . Escrow [A]ccount currently has deposits in a business checking and savings account in the seven digit amounts . . . This reference is issued for the interested party, and does not impose any responsibility to the bank.Id. ¶ 35; Second Am. Compl., Ex. C at 89.
Plaintiff alleges this letter is false and designed to conceal Gordon's fraud because OPT Title did not have deposits in a seven "digit" amount, given that the statement shows the accounts began October 2010 with $91,820.28 and ended with $21,579.20. Defendant argues in opposition that it was under no obligation to respond, as Plaintiff was not the authorized accountholder, but responded in any event and disclosed to the extent permitted by law the literal and accurate information that the accounts contained "seven digit amounts" and that OPT Title had satisfactorily maintained its accounts. Mot. to Dismiss at 17, 18; see Fla. Stat. § 655.059. In other words, $21,579.20 is literally a seven "digit" amount (as opposed to the colloquial seven "figures," which would imply an amount of at least $1,000,000), and OPT Title maintained its checking and savings accounts in a manner satisfactory to the bank.
The Court therefore finds Plaintiff's allegation of intentional concealment and knowledge of Gordon's fraud conclusory and implausible. It is more plausible to infer that Defendant responded intending to both comply with its confidentiality obligations while still providing Plaintiff a literal and accurate response. See Wiand, 938 F. Supp. 2d at 1243. In addition, the October 11, 2010 letter could not evidence knowledge of an ongoing misappropriation or one about to occur because it was sent almost eight months after Gordon defrauded Plaintiff. See id. at 1248 ("the bank [must] have actual knowledge or notice that a diversion is to occur or is ongoing."). Even if the Court were to consider the misappropriation as still ongoing eight months after the funds were actually transferred (because Gordon apparently requested several escrow extensions), Plaintiff still could not establish that the letter caused his loss - Gordon had stolen the Deposit long before the letter was sent. Therefore, Plaintiff could not establish the third element of his negligence claim.
As to the second allegedly false correspondence, one of Plaintiff's business associates sent Defendant another request on November 9, 2012, two years later:
Rather than wiring funds into OPT Title, we actually have wired $750,000 into [the Escrow Account] on Feb. 16, 2010. We would
like to know if OPT's incoming account and any other account have the balance to cover this amount in case [] a refund is requested. Furthermore, please advise if any outstanding Lis Pendens is looming over the account. Thank you . . . .Am. Compl. ¶ 37. The request contains two distinct questions: (1) does the Escrow Account, specifically, or a combination of OPT Title's associated accounts, contain at least $750,000; and (2) are there any pending legal actions implicating the accounts? Defendant responded on November 13, 2012: "Good morning . . . [a]ll is well with the account and there don't appear to be any Lis Pendens. Everything is in good order . . . ." Id. ¶ 38.
Plaintiff alleges the response is false because the Escrow Account began the month with a balance of $2.01, and the three accounts combined finished the month with a balance of negative $471.99, thus there were "[in]sufficient funds in OPT Title['s] accounts to cover a refund of the $750,000." Id. ¶¶ 39, 40. However, this allegation baselessly assumes that the vague phrase "all is well" was intended to answer his specific question of whether the accounts when combined contained at least $750,000. It is far more plausible that Defendant simply failed to address Plaintiff's first specific question and instead remarked only that the Escrow Account (the only account Plaintiff named specifically) had a positive balance, or that "all [wa]s well" because there was no pending litigation implicating the Escrow Account. See Wiand, 938 F. Supp. 2d at 1243. Plaintiff's allegation falls far short of showing Defendant intended to mislead Plaintiff and therefore had actual knowledge of an actual misappropriation.
Moreover, the November 2012 response was sent years after Gordon defrauded Plaintiff, thus Plaintiff cannot show an ongoing misappropriation, or one about to occur, or that the response caused his $750,000 loss.
Accordingly, for the foregoing reasons, Plaintiff fails to allege that Defendant had actual knowledge of Gordon's fraudulent misappropriation and therefore cannot show that Defendant owed him, as a non-customer, any duty of care. As such, Plaintiff's negligence claim fails.
B. Count II - Gross Negligence
Gross negligence requires: (1) circumstances which, together, constitute an imminent or clear and present danger amounting to more than normal peril; (2) a showing of knowledge or awareness of the imminent or clear and present danger; and (3) an "act or omission . . . which evinces a 'conscious disregard of consequences,' as distinguished from a 'careless' disregard" - the standard for negligence. Boston ex rel. Estate of Jackson v. Publix Super Markets, Inc., 112 So. 3d 654, 659 (Fla. Dist. Ct. App. 2013).
Here, because Plaintiff failed to state a plausible claim for negligence, Plaintiff necessarily fails to state a claim for gross negligence, which embodies a higher standard. Namely, Plaintiff's claim fails because Defendant had no knowledge of Gordon's fraudulent misappropriation. Defendant could not consciously disregard the consequences of Gordon's misappropriation if it did not actually know of Gordon's misappropriation. See id.; see also O'Halloran, 350 F.3d at 1205.
C. Count III - Aiding and Abetting Fraud
Plaintiff next brings a claim for aiding and abetting fraud. To state a claim for aiding and abetting fraud, Plaintiff must adequately allege: (1) "an underlying [fraud] on the part of the primary wrongdoer" (Gordon); (2) "knowledge of the underlying [fraud] by the alleged aider and abett[or]" (Defendant); and (3) "the rendering of substantial assistance in committing the [fraud] by the alleged aider and abettor." Wiand, 938 F. Supp. 2d at 1244 (quoting Lawrence v. Bank of America, N.A., 455 Fed. App'x 904, 906 (11th Cir. 2012)).
"[T]he second element, knowledge, will only be satisfied if the bank had 'actual knowledge of the fraud . . . .'" Id.; see Lawrence, 455 Fed. App'x at 907. "Actual knowledge may be shown by circumstantial evidence," Wiand, 938 F. Supp. 2d at 1244 (citing Woods v. Barnett Bank of Ft. Lauderdale, 765 F.2d 1004, 1009 (11th Cir. 1985)); however, "courts stress that the . . . circumstantial evidence must demonstrate that the aider-and-abettor actually knew of the underlying [fraud]." Id. (internal quotation marks omitted) (emphasis in original). Hence, facts showing that a bank "should have known," id., or that a bank was reckless, id. at 1246, will not suffice. Additionally, while the elements of a claim sounding in fraud typically must be alleged with particularity, knowledge may be alleged generally. Fed. R. Civ. P. 9(b). Still, bare or conclusory assertions of knowledge do not suffice. Iqbal, 556 U.S. at 678.
The third element, substantial assistance, requires showing that a defendant affirmatively assisted, concealed, or failed to act when required to do so. Lerner v. Fleet Bank, N.A., 459 F.3d 273, 295 (2d Cir. 2006). "However, mere inaction . . . constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff." Id. In this case, Plaintiff alleges no fiduciary relationship with Defendant - Plaintiff was not a customer of Defendant. Thus, only affirmative assistance or concealment of Gordon's fraud will suffice here. See id.
1. Gordon's underlying fraud
The Parties do not dispute the fact that Gordon defrauded Plaintiff. Furthermore, Plaintiff alleges the circumstances of Gordon's fraud with particularity. See Compl. ¶¶ 1-2, 19.
2. Whether Defendant actually knew
First, Defendant argues that Plaintiff's allegations regarding Defendant's knowledge of Gordon's fraud fail to meet Rule 9(b)'s heightened pleading standard - the particularity requirement. Mot. to Dismiss at 13-15; Def.'s Reply at 9.
It is unclear why Defendant asserts in its Motion and reasserts in its Reply that Rule 9(b)'s particularity requirement applies to allegations of knowledge. Rule 9(b) could hardly be clearer: "In alleging fraud . . . a party must state with particularity the circumstances constituting fraud"; however, "knowledge[] and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b); see Cordell Consultant, Inc. Money Purchase Plan & Trust v. Abbott, 561 Fed. App'x 882, 884 (11th Cir. 2014) ("allegations of knowledge and intent are not subject to the particularity requirement."). Accordingly, the Court analyzes this element within the "plausibility" standard established by Rule 8 and Iqbal.
Defendant argues that Plaintiff failed to adequately plead Defendant's actual knowledge of Gordon's fraud at the time it occurred, contending Plaintiff relies on: (1) conclusory assertions that Defendant knew Gordon misappropriated the Deposit; (2) "red flag" suspicious account activity which does not equate to actual knowledge; and (3) correspondence that was not intended to mislead and nevertheless was sent months after the fraud. Mot. to Dismiss at 14-18.
The Court concluded in its analysis of Plaintiff's negligence claim that Plaintiff fails to adequately allege actual knowledge. For the same reasons, Plaintiff fails to adequately plead this element of his aiding and abetting fraud claim.
3. Whether Defendant substantially assisted Gordon's underlying fraud
Plaintiff's allegations that Defendant substantially assisted Gordon are distillable to the allegation that "Gordon's scheme would never have been possible had [Defendant] not permitted Gordon to open and maintain [an] account[] designated as . . . 'Escrow Account' . . . and then accepted specifically designated 'escrow deposits' . . . ." Am. Compl. ¶¶ 63-64. Not only are Plaintiff's allegations conclusory, but they fail to allege affirmative assistance. See Lerner, 459 F.3d at 295. Instead, Plaintiff's theory is that simply by allowing Plaintiff to open and maintain an account, and by accepting the Deposit, which Defendant understood as a routine wire transfer, Defendant thereby substantially assisted Gordon's scheme. This is insufficient. Id.
Moreover, because this element requires a showing of affirmative assistance or affirmative concealment, establishing this element would necessarily require a showing of Defendant's actual knowledge of the misappropriation. In other words, Defendant could not have affirmatively assisted or concealed the underlying fraud if it did not know of the underlying fraud. See Lerner, 459 F.3d at 295. Because Plaintiff failed to adequately allege actual knowledge, Plaintiff cannot adequately allege substantial assistance.
Accordingly, Plaintiff fails to state a claim for aiding and abetting fraud.
D. Count IV - Aiding and Abetting Conversion
To establish a claim for aiding and abetting conversion, Plaintiff must adequately allege: (1) an underlying conversion on the part of the primary wrongdoer (Gordon); (2) knowledge of the underlying conversion by the alleged aider and abett[or] (Defendant); and (3) the rendering of substantial assistance in committing the conversion by the alleged aider and abettor. See Wiand, 938 F. Supp. 2d at 1244; see also Lawrence, 455 Fed. App'x at 907 (affirming dismissal of aiding and abetting claims for both fraud and conversion under same analysis); Lesti v. Wells Fargo Bank, N.A., 960 F. Supp. 2d 1311, 1321 (M.D. Fla. 2013) (analyzing claims for aiding and abetting conversion). "It is well settled that a conversion is an unauthorized act which deprives another of his property permanently or for an indefinite time." Id. (quoting Mayo v. Allen, 973 So. 2d 1257, 1258-59 (Fla. Dist. Ct. App. 2008)).
Here, for the same reasons that Plaintiff's aiding and abetting fraud claim fails, his aiding and abetting conversion claim also fails. Specifically, Plaintiff fails to adequately allege Defendant's actual knowledge and substantial assistance of Gordon's misappropriation.
E. Dismissal with Prejudice without Leave to Amend
Plaintiff seeks leave to amend his First Amended Complaint to add one additional paragraph, which contains subparagraphs. See Mot. to Amend at 3-4. The additional paragraph alleges that one of Defendant's employees obtained a secret $100,000 loan from Gordon, approximately four months after Gordon defrauded Plaintiff, in order to help pay the employee's personal mortgage. See id. Plaintiff argues that adding these allegations rectifies any pleading deficiencies as to Defendant's actual knowledge and substantial assistance.
Defendant argues in opposition that the proposed additions fail to bolster Plaintiff's claims because the secret loan occurred months after Gordon misappropriated Plaintiff's money and had nothing to do with Plaintiff's loss. Def.'s Resp. to Mot. to Amend at 3.
Leave to amend should be "freely give[n] [] when justice so requires." Fed. R. Civ. P. 15(a)(2). The decision whether to grant leave to amend is within the Court's discretion. Burger King Corp. v. Weaver, 169 F.3d 1310, 1315 (11th Cir. 1999). Hence, the Court may deny leave to amend where amendment would be futile, for instance, where the amended complaint would still fail to state a claim. See id. at 1320.
Here, granting Plaintiff leave to amend would be futile because the proposed amendment still does not rectify Plaintiff's pleading deficiencies. Specifically, as to Plaintiff's allegations that Defendant actually knew of Gordon's fraudulent misappropriation, the Court applies the Rule 8 and Iqbal pleading standard. Under this standard, the proposed amendment still fails because Plaintiff does not allege that Defendant or the employee that obtained the secret loan actually knew of Gordon's misappropriation or the broader fraud scheme. See Mot. to Amend at 3-4. At most, the proposed amendment alleges that the employee who obtained an illicit loan also happens to be the same employee who signed the documents opening Gordon's account the year before Gordon committed fraud. See id. at 4. However, Plaintiff fails to allege any connection between the secret loan and Gordon's misappropriation, for example, an illicit quid pro quo arrangement whereby Gordon secretly loaned the employee money in exchange for her concealing his fraud.
As to Plaintiff's argument that the proposed amendment bolsters Plaintiff's substantial assistance allegations, the Court applies Rule 9(b)'s particularity requirement. Again, the proposed amendment fails because Plaintiff fails to assert any allegations whatsoever linking the secret loan to Gordon's misappropriation, much less the particular circumstances showing the secret loan affirmatively assisted or concealed Gordon's scheme.
Accordingly, because Plaintiff's proposed amendment does not cure his pleading deficiencies, amendment would be futile. See Weaver, 169 F.3d at 1315.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED AND ADJUDGED that Defendant's Motion to Dismiss is GRANTED and that Plaintiff's Complaint is therefore DISMISSED WITH PREJUDICE.
It is FURTHER ORDERED that Plaintiff's Motion to Amend is DENIED.
The Clerk of Court is instructed to CLOSE this Case. All other pending motions are DENIED AS MOOT.
DONE AND ORDERED in Chambers at Miami, Florida, this 8th day of December, 2014.
Kevin Michael Moore
K. MICHAEL MOORE
CHIEF UNITED STATES DISTRICT JUDGE Copies furnished to:
All counsel of record