Zamora v. JP Morgan Chase Bank, N.A. ( 2020 )

19-2108
Zamora v. JP Morgan Chase Bank, N.A.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT
ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
6th day of November, two thousand twenty.
Present:
DEBRA ANN LIVINGSTON,
Chief Judge,
BARRINGTON D. PARKER,
GERARD E. LYNCH,
Circuit Judges.
_____________________________________
DANIEL ZAMORA, CGC, INC.,
Plaintiffs-Appellants,
v. 19-2108
FIT INTERNATIONAL GROUP CORP., FOREX
INTERNATIONAL TEAM INC., JAIRO ENRIQUE
SANCHEZ, DILIA MARGARITA BAEZ, JP MORGAN
CHASE BANK, N.A., JPMORGAN CHASE & CO.,
Defendants-Appellees.
_____________________________________
For Plaintiffs-Appellants: DAVID J. STANDER, Law Office of David J. Stander,
Rockville, MD
David A. Bellon, Flushing, NY (on the brief)
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For Defendants-Appellees JP JAMIE S. DYCUS (Noah A. Levine and Alexandra Hiatt,
Morgan Chase Bank, N.A. and on the brief), Wilmer Cutler Pickering Hale and Dorr
JPMorgan Chase & Co. LLP, New York, NY
Appeal from a judgment of the United States District Court for the Southern District of
New York (Pauley, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is AFFIRMED.
Plaintiffs-Appellants Daniel Zamora and CGC, Inc. (“Plaintiffs”) appeal from a judgment
of the United States District Court for the Southern District of New York (Pauley, J.) granting
Defendants-Appellees’ motion to dismiss as to Defendants-Appellees JP Morgan Chase Bank,
N.A. and JPMorgan Chase & Co. (together, “JPMorgan”). On appeal, Plaintiffs challenge the
dismissal of their claims against JPMorgan—specifically, their federal Racketeer Influenced and
Corrupt Organizations Act (“RICO”) and RICO conspiracy claims (Counts 4 and 5 of the
Amended Complaint, respectively) and their state-law claims for fraudulent misrepresentation,
knowing participation in a breach of trust, aiding and abetting a breach of fiduciary duty,
conversion, aiding and abetting conversion, unjust enrichment, breach of fiduciary duty,
commercial bad faith, gross negligence, and aiding and abetting fraud (Counts 6, 7, 9, 10, 11, 12,
13, 14, 15, and 17 of the Amended Complaint, respectively). Plaintiffs’ claims arise out of a
fraud, money laundering, and embezzlement scheme allegedly perpetrated by Dilia Margarita Baez
and Jairo Enrique Sanchez, two Colombian nationals, as well as FIT International Corp. and Forex
International Team Inc. (together, the “FIT Entities”). We assume the parties’ familiarity with
the underlying facts, the procedural history of the case, and the issues on appeal.
* * *
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We review de novo the district court’s judgment granting JPMorgan’s motion to dismiss.
Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 99–100 (2d Cir. 2015). “To survive a motion
to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim
for 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)). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. “Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice.” Id. “We may affirm
on any ground that finds support in the record, regardless of the grounds upon which the district
court relied.” Ellul v. Congregation of Christian Bros., 774 F.3d 791, 796 (2d Cir. 2014).
A. RICO and RICO Conspiracy
The district court dismissed Plaintiffs’ RICO and RICO conspiracy claims because it found
that Plaintiffs failed to allege plausibly that JPMorgan was part of an association-in-fact
“enterprise” with Baez, Sanchez, and the FIT Entities. We agree. To state a claim for relief
under RICO, a plaintiff must plead: “(1) conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). “RICO
broadly defines ‘enterprise’ in § 1961(4) to ‘includ[e] any individual, partnership, corporation,
association, or other legal entity, and any union or group of individuals associated in fact although
not a legal entity.’” Nat’l Org. for Women., Inc. v. Scheidler, 510 U.S. 249, 257 (1994) (alteration
in original). An association-in-fact enterprise “is proved by evidence of an ongoing organization,
formal or informal, and by evidence that the various associates function as a continuing unit.”
United States v. Boyle, 556 U.S. 938, 945 (2009) (internal quotation marks omitted) (quoting
United States v. Turkette, 452 U.S. 576, 583 (1981)). Such an enterprise “must have at least three
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structural features: a purpose, relationships among those associated with the enterprise, and
longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Id. at 946.
As to the purpose requirement, a plaintiff must demonstrate that the members of the association
“share a common purpose to engage in a particular fraudulent course of conduct and work together
to achieve such purposes.” Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 120 (2d Cir. 2013)
(internal quotation marks omitted) (quoting First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385
F.3d 159, 174 (2d Cir. 2004)).
Here, Plaintiffs’ allegations fall far short of permitting a plausible inference that JPMorgan
shared in the alleged association-in-fact enterprise’s common purpose. Although the Amended
Complaint alleges that JPMorgan shared in the alleged RICO enterprise’s common purpose to
defraud investors and convert funds and property for personal gain, that allegation is little more
than a “‘naked assertion’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678
(alteration omitted) (quoting Twombly, 550 U.S. at 557). Indeed, the Amended Complaint lacks
any “specific factual allegation[s] about the intent” of JPMorgan to defraud investors. Cruz, 720
F.3d at 121. At best, the allegations in the Amended Complaint plausibly suggest that JPMorgan
entered into “a routine contractual combination for the provision of financial services” with the
remaining defendants, which is insufficient on its own to permit a reasonable inference that
JPMorgan shared in their purported illicit purpose. Singh v. NYCTL 2009-A Trust, No. 14-CV-
2558, 2016 WL 3962009, at *10 (S.D.N.Y. July 20, 2016) (internal quotation marks omitted)
(quoting Jubelirer v. MasterCard Int’l, Inc., 68 F. Supp. 2d 1049, 1053 (W.D. Wis. 1999)). That
JPMorgan generated unspecified fees and profits from the FIT Entities’ account activities plausibly
alleges only a benefit incidental to the ordinary and lawful banking relationship. To that end, the
allegations fail to suggest why JPMorgan would share in the goal of defrauding investors.
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Plaintiffs argue they plausibly allege that JPMorgan shared in the RICO enterprise’s
common purpose because they plausibly allege that the JPMorgan employee who opened the
accounts for the FIT Entities was complicit in the fraudulent scheme. However, Plaintiffs’
allegations that the JPMorgan employee engaged in criminal activity along with Baez and Sanchez
are merely speculative. The facts alleged in the Amended Complaint permit only the reasonable
inference that the JPMorgan employee engaged in the ordinary business activities of opening bank
accounts for the FIT Entities and cultivating a business relationship with the FIT Entities, Baez,
and Sanchez. Indeed, at oral argument in the district court, Plaintiffs admitted they were not
aware of anything that the JPMorgan employee affirmatively did aside from opening bank
accounts for the FIT Entities.
Accordingly, Plaintiffs have failed sufficiently to plead the existence of an association-in-
fact enterprise and have failed to state a claim for relief under § 1962(c) of the RICO statute. And
in the circumstances here, Plaintiffs’ failure to state a claim for a substantive RICO violation is
fatal to their RICO conspiracy claim under § 1962(d), given that Plaintiffs rely on the same factual
predicate to plead both the substantive RICO violation and the conspiracy claim against JPMorgan.
See First Capital, 385 F.3d at 164 (“[B]ecause Plaintiffs’ RICO conspiracy claims are entirely
dependent on their substantive RICO claims, we also concur in the District Court’s dismissal of
the RICO conspiracy claims.”).
B. Fraudulent Misrepresentation
The district court dismissed Plaintiffs’ claim for fraudulent misrepresentation because it
found that Plaintiffs’ allegations fall short of the heightened pleading standards of Fed. R. Civ. P.
9(b). “To state a claim for fraudulent misrepresentation under New York law[,] ‘a plaintiff must
show that (1) the defendant made a material false representation, (2) the defendant intended to
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defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the
plaintiff suffered damage as a result of such reliance.’” Eternity Glob. Master Fund Ltd. v.
Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 186–87 (2d Cir. 2004) (quoting Banque Arabe et
Internationale D’Investissement v. Md. Nat’l Bank, 57 F.3d 146, 153 (2d Cir. 1995)). To comply
with Rule 9(b) as to a claim of fraudulent misrepresentation, “the complaint must: (1) specify the
statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and
when the statements were made, and (4) explain why the statements were fraudulent.” Lerner v.
Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quoting Mills v. Polar Molecular Corp., 12
F.3d 1170, 1175 (2d Cir. 1993)).
We agree with the district court that Plaintiffs have failed to satisfy the requirements of
Rule 9(b) as to JPMorgan. As the district court noted, most of Plaintiffs’ allegations concerning
false statements are aimed at Baez and Sanchez, not JPMorgan. With respect to JPMorgan,
Plaintiffs allege only that: “JPMorgan employees knowingly made material false statements and
representations[,] including . . . [s]upplying Plaintiffs with false and fraudulent bank account
statements,” App’x at 122 (Compl. ¶ 75); “JPMorgan falsely represented to victims that the funds
from the 66 Account had already been deposited into that account and those funds could not be
distributed to anyone other than to trade in the Forex market,” App’x at 107–08 (Compl. ¶ 44);
and “[o]n information and belief, JPMorgan officials repeatedly provided bank records, including
account balances, verifications, and other documents confirming that the funds in the Plaintiffs’
escrow accounts were secure in those accounts,” App’x 108 (Compl. ¶ 44). These allegations
provide little specificity regarding what the fraudulent statements were or where, when, and by
whom they were made. In that respect, they fall far short of the heightened pleading requirements
of Rule 9(b).
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C. Knowing Participation in a Breach of Trust, Aiding and Abetting a Breach of
Fiduciary Duty, Aiding and Abetting Conversion, Commercial Bad Faith, and
Aiding and Abetting Fraud
The district court dismissed Plaintiffs’ claims for knowing participation in a breach of trust,
aiding and abetting a breach of fiduciary duty, aiding and abetting conversion, commercial bad
faith, and aiding and abetting fraud for Plaintiffs’ failure to plausibly allege JPMorgan’s actual
knowledge of the underlying fraudulent conduct allegedly committed by Baez, Sanchez, and the
FIT Entities. 1 Under New York law, claims for knowing participation in a breach of trust, aiding
and abetting a breach of fiduciary duty, aiding and abetting conversion, commercial bad faith, and
aiding and abetting fraud all require a plaintiff to demonstrate that the defendant had “actual
knowledge” of the misconduct at issue. See Bigio v. Coca-Cola Co., 675 F.3d 163, 172 (2d Cir.
2012) (aiding and abetting conversion); Lerner, 459 F.3d at 292–95 (commercial bad faith, aiding
and abetting fraud, and aiding and abetting a breach of fiduciary duty); see also SPV Osus Ltd. v.
UBS AG, 882 F.3d 333, 345 (2d Cir. 2018) (knowing participation in a breach of trust). Mere
“constructive knowledge” of the purported misconduct does not satisfy the “actual knowledge”
inquiry as to any of these claims. See, e.g., Krys v. Pigott, 749 F.3d 117, 127–28 (2d Cir. 2014)
(aiding and abetting fraud and aiding and abetting a breach of fiduciary duty); In re Agape Litig.,
773 F. Supp. 2d 298, 309–13, 325–26 (E.D.N.Y. 2011) (aiding and abetting conversion); see also
SPV Osus Ltd, 882 F.3d at 345 (knowing participation in a breach of trust). Moreover, where, as
here, allegations in a complaint sound in fraud, a plaintiff must “plead facts giving rise to [a]
‘strong inference’ of actual knowledge of fraud[,] [as] required by Federal Rule of Civil Procedure
1
The district court also held that Plaintiffs failed to state aiding and abetting claims because they did not
plausibly allege JPMorgan’s substantial assistance in the underlying fraud. Given our agreement with
the district court’s analysis as to actual knowledge, however, we need not address this alternative holding.
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9(b).” E.g., Lerner, 459 F.3d at 292–95 (applying Rule 9(b) to commercial bad faith, aiding and
abetting a breach of fiduciary duty, and aiding and abetting fraud claims and requiring a “strong
inference” of actual knowledge).
We are not persuaded that Plaintiffs’ allegations permit a plausible inference, let alone a
strong inference, that JPMorgan had actual knowledge of the fraudulent conduct committed by
Baez, Sanchez, and the FIT Entities. Throughout the Amended Complaint, Plaintiffs offer
consistently conclusory allegations that JPMorgan knew or should have known about the alleged
fraudulent conduct. Such conclusory allegations are flatly insufficient. See Iqbal, 556 U.S. at
681. So, too, are Plaintiffs’ allegations concerning the purported knowledge of the JPMorgan
employee who opened the accounts for the FIT Entities, as we discussed above.
At their core, Plaintiffs’ allegations rely on the theory that JPMorgan must have known of
the alleged misconduct. Demonstrative of JPMorgan’s knowledge, according to Plaintiffs, are
their bald allegations that JPMorgan ignored a host of red flags concerning the alleged fraud of
which they were or should have been aware, including that the FIT Entities commingled investor
funds, that Baez and Sanchez refused to cooperate with government investigations, and that the
FIT Entities were never registered as futures commodities merchants with the National Futures
Association (“NFA”). But these red flags, as alleged, are insufficient to impute knowledge of the
scheme to JPMorgan because, even assuming arguendo that they may have put JPMorgan on
notice that “some impropriety may have been taking place,” they do not create a strong inference
of actual knowledge of the FIT Entities’ “outright theft of client funds.” Lerner, 459 F.3d at
294. 2 Plaintiffs’ speculation that JPMorgan must have known about the scheme because it had
2
Although we have held that a bank’s knowledge of commingling client funds may be sufficient to
permit a strong inference of knowledge of a breach of fiduciary duty, Lerner, 459 F.3d at 294, Plaintiffs
here offer no more than the conclusory allegation that “JPMorgan permitted all funds from putative
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in place unspecified anti-money-laundering controls is similarly insufficient to support a strong
inference of actual knowledge here.
To the extent Plaintiffs argue that they satisfy their pleading burden on a theory of
conscious avoidance, they are also mistaken. Even assuming they may bring their claims on such
a theory, see Krys, 749 F.3d at 131 (noting that it is unclear whether under New York law a plaintiff
may satisfy the “actual knowledge” inquiry by showing conscious avoidance), Plaintiffs do not
allege any facts remotely suggesting that JPMorgan refrained from investigating facts concerning
the FIT accounts specifically to avoid knowledge of the fraud, see id. at 131–32 (noting that to
proceed on a conscious avoidance theory, a plaintiff must show that a defendant “‘was aware of a
high probability of the [relevant] fact . . . and consciously avoided confirming that fact’”) (quoting
United States v. Ebbers, 458 F.3d 110, 124 (2d Cir. 2006)). Accordingly, the district court did
not err in concluding that Plaintiffs failed to state claims for knowing participation in a breach of
trust, aiding and abetting a breach of fiduciary duty, aiding and abetting conversion, commercial
bad faith, and aiding and abetting fraud.
D. Conversion
The district court dismissed Plaintiffs’ conversion claim because it found that Plaintiffs
failed to plead JPMorgan’s dominion over the property or interference with it, in derogation of
their rights. It furthermore held that Plaintiffs failed to meet their pleading burden under Rule
9(b). Under New York law, “[c]onversion is the unauthorized assumption and exercise of the
right of ownership over goods belonging to another to the exclusion of the owner’s rights.”
Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 403–04 (2d Cir. 2006) (alteration in original)
investors to be commingled into a single account,” App’x at 94 (Compl. ¶ 8), without any description as
to how JPMorgan was aware of such commingling.
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(internal quotation marks omitted) (quoting Vigilant Ins. Co. of Am. v. Hous. Auth., 87 N.Y.2d 36,
44 (1995)). The “[t]wo key elements of conversion are (1) [the] plaintiff’s possessory right or
interest in the property . . . and (2) [the] defendant’s dominion over the property or interference
with it, in derogation of [the] plaintiff’s rights.” Colavito v. N.Y. Orgon Donor Network, Inc., 8
N.Y.3d 43, 50 (2006) (citations omitted). Where a claim for conversion “rests on an allegation
of fraudulent taking,” it is furthermore “subject to the pleading requirements of Rule 9(b).” Daly
v. Castro Llanes, 30 F. Supp. 2d 407, 414 (S.D.N.Y. 1998).
We agree with the district court that Plaintiffs’ allegations fall well short of plausibly
alleging JPMorgan’s dominion over the property or interference with it, in derogation of their
rights. Plaintiffs do little more than plead the elements of the cause of action with respect to their
conversion claim, which does not suffice. See Iqbal, 556 U.S. at 678 (“A pleading that offers
‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not
do.’” (quoting Twombly, 550 U.S. at 555)). Indeed, Plaintiffs’ factual allegations are sufficient
only to plead that Plaintiffs’ funds were being held by Baez, Sanchez, and the FIT Entities in
JPMorgan accounts and were ultimately misappropriated by Baez, Sanchez, and the FIT Entities.
Plaintiffs have therefore failed to state a claim for conversion against JPMorgan.
D. Breach of Fiduciary Duty and Gross Negligence
The district court held that Plaintiffs failed to allege plausibly that JPMorgan owed them a
duty for purposes of their breach of fiduciary duty and gross negligence claims. 3 Under New
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It also dismissed Plaintiffs’ unjust enrichment claim because it found that Plaintiffs’ relationship with
JPMorgan was too attenuated to permit such a claim. We need not address this claim here, however,
because Plaintiffs have waived appellate review of this claim by providing no specific arguments in
support of it in their appellate brief. See Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998) (noting
that “[i]ssues not sufficiently argued in the briefs are considered waived and normally will not be
addressed on appeal”).
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York law, claims for breach of fiduciary duty require a plaintiff to plead: “(i) the existence of a
fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom.” Spinelli
v. Nat’l Football League, 903 F.3d 185, 207 (2d Cir. 2018) (internal quotation marks omitted)
(quoting Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131, 138 (2d Cir. 2011)). Similarly, claims
for gross negligence require a plaintiff to plead that the defendant owed a duty of care to the
plaintiff. See NASDAQ OMX Grp., Inc. v. UBS Secs., LLC, 770 F.3d 1010, 1023 (2d Cir. 2014).
Banks generally do not owe non-customers a duty to protect them from fraud perpetrated by
customers. See Lerner, 459 F.3d at 286–87. Indeed, “a depositary bank has no duty to monitor
fiduciary accounts maintained at its branches in order to safeguard funds in those accounts from
fiduciary misappropriation.” Id. at 287 (internal quotation marks omitted) (quoting Norwest
Mortg., Inc. v. Dime Sav. Bank of N.Y., 721 N.Y.S.2d 94, 95 (2d Dep’t 2001)).
Notably, we have recognized a narrow exception to the rule that banks owe no duty to
protect third parties from the fraudulent conduct of bank customers when a bank fails to act to
safeguard trust funds on deposit in a fiduciary account after being “confronted with clear evidence
indicating that those funds are being mishandled.” Id. at 295. Under this exception, a “bank
has the right to presume that the fiduciary will apply the funds to their proper purposes under the
trust,” and the bank loses the right to this presumption when faced with “circumstances which
reasonably support the sole inference that a misappropriation is intended.” Id. at 287 (internal
quotation marks omitted) (quoting Bischoff ex rel. Schneider v. Yorkville Bank, 218 N.Y. 106, 111,
113 (1916)).
This exception is inapplicable to the facts as pleaded in the Amended Complaint.
Plaintiffs’ bald allegations that JPMorgan knew or should have known that Baez, Sanchez, and the
FIT Entities commingled investor funds, refused to cooperate with government investigations, and
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failed to register with the NFA are insufficient, without more, to support a reasonable inference
that JPMorgan had “clear evidence” of the misconduct at issue. And although Plaintiffs allege
that the FIT Entities engaged in voluminous international account transfers, they have failed to
explain how these isolated transfers of money necessarily constitute “clear evidence” of
misappropriation. We therefore agree with the district court that Plaintiffs have failed to state
claims for breach of fiduciary duty and gross negligence against JPMorgan.
* * *
We have considered Plaintiffs’ remaining arguments and find them to be without merit.
Accordingly, we AFFIRM the judgment of the district court. Plaintiffs’ pending motion to
supplement the record is DENIED as moot.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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