Jonathan E. Perlman v. Wells Fargo Bank, N.A. ( 2014 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-14345
________________________
D.C. Docket No. 9:10-cv-81612-DTKH
JONATHAN E. PERLMAN, as Court-Appointed
Receiver of Creative Capital Consortium, LLC,
Plaintiff-Appellant,
versus
WELLS FARGO BANK, N.A.,
successor-in-interest to Wachovia Bank, N.A.,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(May 6, 2014)
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Before MARCUS and DUBINA, Circuit Judges, and HODGES, * District Judge.
PER CURIAM:
From November 2007 through December 2008, George Theodule operated a
vast Ponzi scheme in South Florida. For five months in 2008, Theodule
maintained some of the proceeds of his illegal operations in various accounts with
Defendant Wells Fargo Bank, N.A. 1 Plaintiff Jonathan E. Perlman is the court-
appointed receiver for several related entities (the “Receivership Entities”) 2
created and used by Theodule to perpetrate his Ponzi scheme. Perlman filed suit
against Wells Fargo alleging, among other things, claims that the Bank aided and
abetted Theodule’s operation of the Ponzi scheme, and claims of fraudulent
transfers in violation of Florida’s Uniform Fraudulent Transfer Act. The district
court dismissed these claims with prejudice, finding that Perlman failed to plead
facts sufficient to raise a plausible inference that Wells Fargo had actual
knowledge of Theodule’s Ponzi scheme. The district court also denied as futile
Perlman’s request for leave to file a second amended complaint.
*
Honorable Wm. Terrell Hodges, United States District Judge for the Middle District of
Florida, sitting by designation.
1
During the events that gave rise to this case, the bank was known as Wachovia Bank,
N.A. Wells Fargo later acquired Wachovia, and is Wachovia’s successor-in-interest. For ease of
reference, we will refer to both banks as “Wells Fargo.”
2
The related entities include Creative Capital Consortium, LLC, A Creative Capital
Concept$, LLC, United Investment Club, Reverse Auto Loan, LLC, Wealth Builders Circle,
LLC., The Dream Makers Capital Investment, LLC, G$ Trade Financial, Inc., and Unity
Entertainment Group, Inc.
2
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Perlman appeals the district court’s order of dismissal without leave to
amend. While we agree with the district court that Perlman’s First Amended
Complaint failed to sufficiently allege claims for relief, we disagree that any
further amendments would be futile and we therefore remand the case with
instructions to allow Perlman leave to file his second amended complaint.
I.
We review de novo a district court’s dismissal of a complaint for failure to
state a claim upon which relief could be granted. Starship Enters. of Atlanta, Inc.
v. Coweta Cnty., Ga., 708 F.3d 1243, 1252 (11th Cir. 2013). And we review the
denial of a motion to amend a complaint for abuse of discretion and review de
novo whether the requested amendment would be futile. Tampa Bay Water v.
HDR Eng’g, Inc., 731 F.3d 1171, 1178 (11th Cir. 2013); Cockrell v. Sparks, 510
F.3d 1307, 1310 (11th Cir. 2007).
A.
Because this case was dismissed on a Fed. R. Civ. P. 12(b)(6) motion, we
restate the following facts as alleged by Perlman in his First Amended Complaint,
accepting them as true and construing them in the light most favorable to him.
Belanger v. Salvation Army, 556 F.3d 1153, 1155 (11th Cir. 2009).
From November 2007 through December 2008, Theodule, a Haitian
national, operated a massive and widespread Ponzi scheme targeting wage earning
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Haitian-Americans in South Florida, Atlanta, New Jersey, and Chicago. Holding
himself out as a Christian pastor, Theodule promised investors that he would
double their investment within 90 days, with little or no financial risk, and that he
was offering his investment expertise to help build wealth within the Haitian
community.
Under Theodule’s direction, more than 100 “investment clubs” were
organized as vehicles to gather and collect the investment proceeds. The
investment clubs would pool investor funds and transmit them to the Receivership
Entities, minus a 10% commission, for an anticipated 90 day period, during which
the investors believed that Theodule was trading stocks and options on their behalf
to multiply profits. Theodule also used the Receivership Entities to pay false
“profits” to initial investors – the typical Ponzi scheme technique – to trick future
investors into believing that the promise of large financial returns was a reality. By
the time the Securities and Exchange Commission intervened on December 29,
2008, Theodule had succeeded in bilking investors out of more than $68 million
dollars.
Theodule initially kept the Ponzi scheme’s bank accounts, including the
accounts of the Receivership Entities, at Washington Mutual Bank. In March
2008, Theodule began moving his accounts to Wells Fargo, after he was informed
that Washington Mutual intended to close the accounts due to suspicious activity.
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Theodule began his relationship with Wells Fargo by opening four accounts for
Creative Capital Consortium, LLC. (“Creative Capital”) – denominated as a
payroll account, a wire account, a deposit account, and a checking account. The
accounts were initially classified as relating to a “money service business” and
were later reclassified as relating to “investment business” and
“securities/commodities” business activity.
Over the next five weeks, 36 “feeder accounts” were opened at Wells Fargo
by other persons, including Theodule’s wife and sister. These “feeder accounts”
transferred $2.2 million directly to the Creative Capital accounts in the first month
alone. During this same time, $140,000 in cash was deposited directly into the
Creative Capital accounts, and Theodule withdrew $235,000 in currency from
these same accounts. Wells Fargo assisted Theodule in making these large cash
withdrawals by permitting Theodule to receive the cash through the drive-thru
window in order to reduce the risk of theft.
Within six weeks after Theodule opened the Creative Capital accounts,
Wells Fargo noted in internal documents suspicious activity in one of the “feeder”
investment club accounts, the Wealth Builders Circle, LLC account. Numerous
small-dollar, even-amount checks from individuals totaling $400,000 had been
deposited into the account, and those funds were then transferred directly to the
Creative Capital accounts. Wells Fargo placed a freeze on the Wealth Builders
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account, which it removed four days later after receiving a “Creative Capital
Consortium Business Plan” from one Creative Capital’s employees. Perlman
alleges, however, that the business plan was “nonsensical” on its face and
contained numerous obvious inconsistencies.
From May 9, 2008 through July 31, 2008, a period of less than three months,
$10,067,443.51 was deposited into the Creative Capital accounts and
$10,560,239.93 was withdrawn, substantial portions of which were disbursed
directly to Theodule and his wife. On July 24, 2008, Wells Fargo informed
Theodule’s wife that it was closing the Wealth Builders account because there was
“no evidence of any investing going on and that funds were merely washing
through the account from hand to hand.” On August 1, 2008, Wells Fargo closed
most, but not all, of the Creative Capital accounts. Over the course of his five-
month relationship with Wells Fargo, Theodule transferred more than $38 million
through various accounts, including more than $1 million in over-the-counter cash
transactions.
B.
The Securities and Exchange Commission filed a complaint against
Theodule and two of the Receivership Entities on December 29, 2008, alleging
violations of various provisions of the Securities and Exchange Act, and the court
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ultimately appointed Perlman as receiver over all of the Receivership Entities. 3 On
December 21, 2010, Perlman initiated this action by filing a complaint against
Wells Fargo for its alleged role in the Ponzi scheme and the resulting harm to the
Receivership Entities. 4 Perlman amended his complaint on April 5, 2011 to assert
eight claims based on aiding and abetting a breach of a fiduciary duty, aiding and
abetting conversion, common law negligence, wire transfer liability under federal
and state law, avoidance of fraudulent transfers, and aiding and abetting of
fraudulent transfers.
Wells Fargo moved to dismiss all of these claims for failure to comply with
Fed. R. Civ. P. 12(b)(6), and for lack of standing. On November 22, 2011, the
district court dismissed with prejudice the common law negligence claim, the
aiding and abetting fraudulent transfer claim, and the two wire transfer claims, but
found that Perlman had sufficiently alleged standing as well as plausible claims for
3
The SEC action is styled: The United States Securities and Exchange Commission v.
Creative Capital Consortium, LLC, A Creative Capital Concept$, and George Theodule, Case
No. 08-81565-CIV-HURLEY/HOPKINS, formerly pending in the United States District Court
for the Southern District of Florida. A multimillion dollar consent judgment was entered in early
2010.
4
Perlman is not asserting claims for harms inflicted on the individual investors. His
claims are limited solely to those seeking relief based on harms to the Receivership Entities
themselves when Theodule misappropriated funds that had been deposited to the credit of the
Entities.
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aiding and abetting breach of a fiduciary duty and conversion, and for avoidance of
fraudulent transfers. 5
On January 11, 2012 a panel of this Court issued the unpublished opinion in
Lawrence v. Bank of America, N.A., 455 F. App’x. 904 (11th Cir. 2012).
Lawrence involved a group of investors in a Ponzi scheme who filed a class action
against Bank of America, alleging that the bank aided and abetted in the operation
of the scheme. The district court held, and this Court affirmed the holding, that the
plaintiffs had failed to plead facts sufficient to establish, beyond mere speculation,
that the bank had actual knowledge of the Ponzi scheme’s wrongful conduct;
actual knowledge being an essential element of the aiding and abetting claims
under Florida law.
Citing Lawrence, Wells Fargo moved the district court to reconsider its prior
order partially dismissing Perlman’s amended complaint, and asked the district
court to dismiss with prejudice all remaining claims. Perlman opposed Wells
Fargo’s motion, and also moved for leave to file a second amended complaint to
include allegations of newly acquired evidence of Wells Fargo’s actual knowledge
of the Ponzi scheme’s operations. Relying entirely on Lawrence, the district court
granted Wells Fargo’s motion for reconsideration, found that Perlman had failed to
5
Perlman has not appealed the dismissal of the negligence, aiding and abetting fraudulent
transfer, or wire transfer claims.
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allege facts sufficient to state claims for aiding and abetting or for fraudulent
transfer liability, and dismissed the complaint with prejudice. The district court
also denied as futile Perlman’s request to file a second amended complaint, holding
that the proposed supplemental factual allegations did little more than allege
additional red flags which the Bank had no obligation to investigate under Florida
law.
II.
Perlman first argues that the district court erroneously dismissed his aiding
and abetting and fraudulent transfer claims as alleged in the First Amended
Complaint because the allegations sufficiently raised a plausible inference that
Wells Fargo had actual knowledge of the Ponzi scheme and assisted in its
operations. Following our prior panel’s decision in Lawrence, we disagree.6
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a plaintiff
must include in his complaint “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,
129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570, 127 S. Ct. 1955, 1974 (2007)). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable
6
In this Circuit, “[u]npublished opinions are not considered binding precedent, but they
may be cited as persuasive authority.” 11th Cir. R. 36-2. See also Suntree Technologies, Inc. v.
Ecosense Intern., Inc., 693 F.3d 1338, 1349 n. 1 (11th Cir. 2012).
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inference that the defendant is liable for the misconduct alleged.” Id. There must
be “more than a sheer possibility that a defendant has acted unlawfully.” Id.(citing Twombly, 550 U.S. at 555-56, 127 S. Ct at 1965-66).
Because the elements of aiding and abetting are the same for both the breach
of fiduciary duty and conversion claims, we will consider them together. See
Lawrence, 455 F. App’x. 904, 906 (“Given that all of Plaintiffs’ claims are
predicated on the theory of aiding and abetting, we need only consider whether
Plaintiffs adequately alleged the elements of such a claim.”). The elements of a
cause of action for aiding and abetting in Florida are: “(1) an underlying violation
on the part of the primary wrongdoer; (2) knowledge of the underlying violation by
the alleged aider and abettor; and (3) the rendering of substantial assistance in
committing the wrongdoing by the alleged aider and abettor.” 7 Lawrence, 455 F.
App’x at 906-07 (citing AmeriFirst Bank v. Bomar, 757 F. Supp. 1365, 1380 (S.D.
Fla. 1991) and ZP No. 54 Ltd. P’ship v. Fid. & Deposit Co. of Md., 917 So. 2d
368, 372 (Fla. 5th Dist. Ct. App. 2005)). See also S&B/BIBB Hines PB 3 Joint
Venture v. Progress Energy Florida, Inc., 365 F. App’x. 202, 207 (11th Cir. 2010)
(listing elements of aiding and abetting breach of fiduciary duty claim).
The Lawrence panel held that when a claim of aiding and abetting is asserted
against a bank, the second element – knowledge – will only be satisfied if the
7
It is undisputed that Florida law supplies the rule of decision in this case.
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plaintiff pleads facts demonstrating that the bank had “actual knowledge” of the
wrongdoings. Lawrence, 455 F. App’x. at 907. See also Wiand v. Wells Fargo
Bank, N.A., 938 F. Supp. 2d 1238, 1244 (M.D Fla. 2013); Lesti v. Wells Fargo
Bank, N.A., Case No. 2:11-cv-695-FtM-29DNF, 2013 WL 1137482 at * 10 (M.D.
Fla. Mar. 19, 2013). And while actual knowledge may be shown by circumstantial
evidence, the circumstantial evidence must demonstrate that the aider and abettor
actually knew of the underlying wrongs committed. Wiand, 938 F. Supp. 2d at
1244 (citing Aetna Cas. & Sur. Co. v. Leahey Constr. Co., 219 F.3d 519, 536 (6th
Cir. 2000) (“[E]vidence establishing negligence, i.e., that a bank ‘should have
known,’ will not suffice.”)). Moreover, Florida does not require banking
institutions that conduct routine banking services to investigate transactions
involving its demand deposit accounts; therefore, merely alleging that a bank
should have known of a Ponzi scheme based solely on a series of purportedly
atypical transactions is not sufficient to survive Twombly. Lawrence, 455 F.
App’x. at 907 (citing Home Fed. Sav. & Loan Ass’n of Hollywood v. Emile, 216
So. 2d 443, 446 (Fla. 1968) and O’Halloran v. First Union Nat’l Bank of Fla., 350
F.3d 1197, 1205 (11th Cir. 2003)).
Perlman’s First Amended Complaint falls into the precise trap described in
Lawrence. Perlman alleges a multitude of atypical transactions and procedural
oddities, including: Theodule’s opening of various accounts, numerous transfers
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amongst the accounts within short time periods, thousands of deposits of even
dollar amounts, large cash deposits and withdrawals, the absence of any investment
activity, and Wells Fargo’s lifting of the freeze on the Wealth Builders account
without further investigation. These allegations fall short of raising a plausible
inference that Wells Fargo actually knew that Theodule was engaging in fraudulent
activity. At most they list facts that could arouse suspicions, and are not sufficient
to trigger any obligation by Wells Fargo to investigate. Lawrence, 455 F. App’x.
at 907. While these “red flags” “may have put the bank[ ] on notice that some
impropriety may have been taking place, those alleged facts do not create a strong
inference of actual knowledge. . . .” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 294
(2d Cir. 2006). The district court properly concluded that Perlman’s amended
complaint failed to state claims for relief for aiding and abetting.
We further find – based on the allegations as they existed in Perlman’s First
Amended Complaint – that the fraudulent transfer claims were also subject to
dismissal. The district court applied the “mere conduit rule,” an affirmative
defense that requires a defendant to “establish (1) that [it] did not have control over
the assets received, i.e., that [it] merely served as a conduit for the assets that were
under the actual control of the [transferor] and (2) that [it] acted in good faith and
as an innocent participant in the fraudulent transfer.” In re Harwell, 628 F.3d
1312, 1323 (11th Cir. 2010) (emphasis in original). While normally an affirmative
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defense cannot be decided at the motion to dismiss stage, in this case the amended
complaint “affirmatively and clearly shows the conclusive applicability of the
defense to bar the action.” Jackson v BellSouth Telecomms., 372 F.3d 1250, 1277
(11th Cir. 2004) (quotations omitted). The district court found that the allegations
of the First Amended Complaint made clear that Wells Fargo acted as a mere
conduit because it never exercised control over any of the funds, and because the
Bank acted in good faith. Concerning the Banks good faith, the district court
concluded that the allegations of the First Amended Complaint failed to show, or
create a plausible inference, that the Bank had actual knowledge of the Ponzi
scheme, or that an ordinary prudent person would have been induced to make
inquiry or investigate. See Wiand v Waxenberg, 611 F. Supp. 2d 1299, 1319
(M.D. Fla. 2009); O’Halloran, 350 F.3d at 1205. Applying Lawrence, we agree.
III.
The district court next rejected Perlman’s request for leave to file a second
amended complaint, finding that any proposed amendments would still fail to state
a claim under Lawrence. District courts may properly deny leave to amend when
an amendment would be futile. Cockrell, 510 F.3d at 1310. “Leave to amend a
complaint is futile when the complaint as amended would still be properly
dismissed or be immediately subject to summary judgment for the defendant.” Id.See also Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th Cir. 1999). In
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other words, leave to amend should be denied when “the complaint as amended
would ‘necessarily fail.’” Florida Evergreen Foliage v. E.I. DuPont De Nemours
& Co., 470 F.3d 1036, 1040 (11th Cir. 2006) (citation omitted).
Perlman argues that his proposed second amended complaint contains
additional information establishing – or at least creating a plausible inference – that
Wells Fargo had actual knowledge of the Ponzi scheme, and therefore the proposed
amendment would not be futile. We agree.
The proposed second amended complaint, in addition to alleging that
Theodule’s transactions amongst and between the feeder accounts and the Wealth
Builders and Creative Capital accounts were atypical, contains allegations (which
must be taken as true) demonstrating Wells Fargo’s actual knowledge.
Specifically, the proposed amendment contains allegations describing the
deposition testimony of Joyce Engstrom, Wells Fargo’s vice president and
financial crimes investigator/corporate fraud investigator.8 Engstrom, who has
been employed in the banking industry for over 40 years, testified that on May 15,
2008, she received a call from investigator Bart Hodges of Wells Fargo’s Loss
Management Department, who was investigating a counterfeit check involving the
Wealth Builders account. During this conversation, Engstrom and Hodges
8
Engstrom’s deposition was conducted on May 30, 2012, as part of the normal discovery
process.
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discussed various business accounts, including the Creative Capital accounts.
Engstrom further testified that within a short time after the investigation of the
Creative Capital accounts was assigned to her, she quickly concluded that there
was unusual activity occurring in those accounts such that it “raise[d] the hair on
the back of your neck.”
According to Engstrom, by May 19, 2008, she and Hodges concluded that it
was necessary to contact the Florida Department of Law Enforcement (“FDLE”)
regarding the suspected unlawful activity in the Creative Capital accounts.
Engstrom in fact contacted the FDLE on May 21, 2008 to set up a meeting. She
also conferred with an agent of the Internal Revenue Service who serves on a
Money Laundering Task Force to review the information she had compiled
concerning the activity in the Creative Capital accounts. Lastly, Engstrom testified
that Wells Fargo routinely closes accounts within 30 days of the detection of
confirmed questionable activity. However, in this case, the accounts operated by
Theodule remained open for another three months until August 2008.
In addition to the allegations relating to Engstrom, Perlman’s proposed
second amended complaint included allegations concerning a Wells Fargo internal
report. The internal report appears to have been maintained by Hodges and
contains numerous entries related to Theodule’s bank accounts. For example, on
May 9, 2008, Hodges reported that he had reviewed the activity in the Wealth
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Builders account and observed numerous small dollar even amount checks from
individuals totaling $400,000 that had been deposited into the account. Hodges
further reported that he had observed large dollar transfers to Wells Fargo accounts
titled to Creative Capital, and that all of the Creative Capital accounts had been
opened on the same day in March. Still more, Hodges noted that he had located
the under-construction web site for Wealth Builders, which described the entity as
an investment club. Hodges concluded, in another May 9, 2008 entry, that he was
“[r]estraining all involved accounts pending further investigation.” Yet, as
previously noted, the accounts remained open for another three months.
The internal report also detailed several communications between Hodges
and Theodule and his employees. On May 9, 2008, Hodges received a call from
Krissy McKeon, a signator on the Creative Capital accounts who was attempting to
send a wire transfer. Hodges told her that the accounts were under review and that
no funds would be transferred until the investigation was complete. On May 12,
2008, Hodges spoke to Theodule himself. Theodule stated that he operated
numerous branches of his investment business in Florida and Georgia under
different names, and that he invested funds for customers in many different areas.
Theodule also stated that he was in the process of terminating all business relations
with Washington Mutual because Wells Fargo was a “business friendly” bank.
Hodges asked Theodule to fax him a typical package that a prospective investor
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would receive, and advised Theodule that he would be contacting Washington
Mutual to obtain further information.
In one additional entry on the internal report, dated May 16, 2008, Hodges
reported that the Creative Capital accounts were receiving large deposits, some in
cash, with little evidence of any investment activity, and he identified fourteen
entities related to Creative Capital that had opened accounts with Wells Fargo.
IV.
The additional allegations of the proposed second amended complaint,
supported by the testimony of Wells Fargo’s own representatives, establish a fact
pattern that, if proven, a reasonable fact finder could view as sufficient to go
beyond “red flags.” These allegations could support a plausible inference of actual
knowledge by Wells Fargo of the Ponzi scheme which it then aided and abetted by
permitting the fraud to continue through use of its accounts after it had actual
knowledge of the scheme. The same plausible inference of actual knowledge
would also foreclose dismissal of the proposed second amended complaint’s
fraudulent transfer claims on the basis of Wells Fargo’s mere conduit affirmative
defense. 9
9
This should not be read as a determination of law that the mere conduit affirmative
defense is unavailable. We hold only that the second amended complaint should be allowed, and
the affirmative defense may be asserted and resolved in subsequent proceedings either by
dispositive motion or by the fact finder at trial.
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A court abuses its judicial discretion if, among other things, the judge fails to
apply the proper legal standard. E.g., United States v. Shaygan, 652 F.3d 1297,
1310 (11th Cir. 2011); United States v. Gilbert, 198 F.3d 1293, 1298 (11th Cir.
1999); In re Hillsborough Holdings Corp., 127 F.3d 1398, 1401 (11th Cir. 1997).
Here, the proper legal standard is established by Fed. R. Civ. P. 15(a)(2): “The
court should freely give leave [to amend] when justice so requires.” Having
concluded that the proposed amendment would not be futile, we also conclude that
leave to amend should have been granted under Rule 15(a)(2), and the district
court’s refusal to grant such leave was an abuse of discretion.
The order and judgment of the district court reviewed on this appeal is
VACATED and the case is remanded for further proceedings consistent with this
Opinion. 10
10
On March 28, 2014, another panel of this Court issued an unpublished opinion in a
parallel case, Perlman v. Bank of America, Case Nos. 12-13436, 12-14073, 2014 WL 1259462(11th Cir. Mar. 28, 2014). The Bank of America matter involved the same trustee, Perlman,
alleged similar claims for aiding and abetting and violations of FUFTA, was heard before the
same district court, and arose out of the same Ponzi scheme involved in this case. The Bank of
America panel affirmed the dismissal with prejudice of the aiding and abetting claims without
leave to amend, reversed the dismissal of the FUFTA claim, and remanded the case for further
proceedings. Bank of America’s treatment of the aiding and abetting claims is readily
distinguishable. Perlman’s request for leave to amend his aiding and abetting claims in Bank of
America was buried in a footnote in one of his briefs, and no detail was proffered with respect to
any additional facts that the requested amendment would allege. By contrast in this case,
Perlman made a specific motion before the district court requesting leave to amend, and filed a
proposed second amended complaint setting out significant additional facts relating to Wells
Fargo’s actual knowledge of the ongoing fraud.
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