R.J. Zayed v. Associated Bank, N.A. , 779 F.3d 727 ( 2015 )

United States Court of Appeals
For the Eighth Circuit
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No. 13-3388
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R.J. Zayed, in His Capacity as Court-Appointed Receiver for the Oxford Global
Partners, LLC, Universal Brokerage FX, and Other Receiver Entities
lllllllllllllllllllll Plaintiff - Appellant
v.
Associated Bank, N.A.
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: October 9, 2014
Filed: March 2, 2015
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Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.
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RILEY, Chief Judge.
For a period of approximately three years ending in 2009, five schemers bilked
unsuspecting investors of an estimated $190 million in a Minnesota Ponzi scheme.
The schemers took in over $79 million of the investors’ funds with the help of
defendant Associated Bank, N.A. After the scheme was exposed, the district judge
in a related case appointed a receiver to take custody of funds owned by the
schemers’ estates and by organizations under their control (receiver entities).1 The
receiver then brought this action on behalf of the receiver entities, alleging
Associated Bank aided and abetted the scheme. The district court granted Associated
Bank’s motion to dismiss for failure to state a claim and denied the receiver’s request
to file a motion to reconsider. The receiver appeals. We reverse and remand for
further proceedings.2
I. BACKGROUND
A. Facts
In reciting the facts, “we accept as true the well-pleaded allegations in the . . .
complaint,” Varga v. U.S. Bank N.A., 764 F.3d 833, 836 (8th Cir. 2014), and we
“‘draw[] all reasonable inferences in favor of the nonmoving party,’” the receiver,
Topchian v. JPMorgan Chase Bank, N.A., 760 F.3d 843, 848 (8th Cir. 2014) (quoting
Simes v. Ark. Jud. Discipline & Disability Comm’n, 734 F.3d 830, 834 (8th Cir.
2013)).
The Ponzi schemers, including Trevor Cook and Patrick Kiley, convinced
potential investors their money would be held in totally liquid and segregated
1
On November 23, 2009, in a civil case brought by the U.S. Securities and
Exchange Commission (SEC) against schemers Trevor Cook and Patrick Kiley and
related individuals and organizations, a different district judge appointed named
plaintiff R.J. Zayed as receiver. Thus, the district court in this case had ancillary
jurisdiction. See Gibson v. Vinton, 21 F.2d 168, 170 (8th Cir. 1927) (“[A] federal
court has jurisdiction of an ancillary suit by its receiver, [and] any suit by a receiver
in winding up the affairs of a receivership, or for the collection of assets, or in
defense of the property in his hands as receiver, is to be regarded as ancillary to the
main suit, and is cognizable in the federal court.”). See also Pope v. Louisville, N.A.
& C. Ry. Co., 173 U.S. 573, 577 (1899). On April 5, 2013, the district court granted
Zayed leave to recuse himself and appointed three other attorneys to act on Zayed’s
behalf. This opinion refers to the office, “receiver,” and not to any particular person.
2
We have appellate jurisdiction under 28 U.S.C. § 1291.
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accounts and invested, with lucrative returns, in a currency exchange program with
a Swiss trader, Crown Forex, SA. To convert the investors’ funds to their own use,
the schemers opened bank accounts where they could deposit the investors’ checks
written to one of the receiver entities. One of Kiley’s employees referred Kiley to the
employee’s step-brother, Lien Sarles, an assistant vice president at Associated Bank.
Having visited Kiley at his office before Kiley opened an account at Associated Bank,
Sarles knew Kiley ran his supposed investment business, along with the radio
program used to promote it, from a converted bedroom office and a basement in a
suburban home. Sarles assisted Kiley and Cook in opening several accounts at
Associated Bank, many of which Sarles understood would be used to hold investor
funds.
Cook and Kiley wanted to open an account at Associated Bank in the name of
Crown Forex, SA, but Sarles told Kiley it would be difficult to open an account for
a foreign entity. Sarles recommended opening the account in the name of a domestic
entity, Crown Forex LLC. Sarles personally met with Kiley to open the account for
Crown Forex LLC. Kiley and his assistant, Julia Smith, signed account documents
as “members” of Crown Forex LLC. When opening the account, Kiley did not
provide required registration verification from the Minnesota Secretary of State, and
Sarles was aware of this fact. Sarles told Kiley he must provide the documentation.
Kiley never did so, because Crown Forex LLC was a fictional entity, not organized
under any state’s law. Yet the Associated Bank account application, “prepared by”
an Associated Bank employee and signed by Kiley, falsely stated the Crown Forex
LLC documentation was provided from a “[r]eport from a state registration
information website.” Kiley submitted another form, signed by Sarles for Associated
Bank, falsely stating Crown Forex LLC was organized in the state of Minnesota.
Although Sarles knew Associated Bank’s monitoring department would freeze or
close accounts without proper documentation, Sarles claims he forgot to contact Kiley
about the missing Crown Forex LLC documentation.
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Within two years, investors deposited over $79 million into the phony Crown
Forex LLC account at Associated Bank. Although Sarles was aware the investors’
funds theoretically were to be used for trading by Crown Forex, SA, none of the
money in the Crown Forex LLC account was ever transferred to Crown Forex, SA,
which was neither an owner of nor a signatory to the Crown Forex LLC account.
Rather, the Crown Forex LLC funds were transferred to other accounts associated
with the scheme both at Associated Bank and at other banks.
Sarles personally approved several such transfers requested by Cook, even
though Cook was not a signatory on the Crown Forex LLC account—only Kiley and
Smith were signatories. Sarles approved over $3 million in transfers from the Crown
Forex LLC account to Cook’s personal accounts, even though Sarles knew the Crown
Forex LLC account held client investment funds and Cook had no signatory
authority.
Associated Bank also issued checks from the Crown Forex LLC account that
did not include the Crown Forex LLC name, but fictitiously read, “Client
Disbursement Account.” Some of the account applications for other receiver entities
also contained falsehoods, such as fake suite numbers in the addresses. Although
Associated Bank knew some of the accounts were to hold investment funds, the
account applications stated the accounts would be checking or money market
accounts.
In December 2008, the Swiss Financial Market Supervisory Authority
(FINMA) announced it had frozen Crown Forex, SA’s accounts. In February 2009,
Google alerted that Crown Forex, SA was under investigation—the next day, Sarles
organized a phone call with Cook. A few days later, one of the scheme investors
received an email from FINMA stating Crown Forex, SA was no longer authorized
to conduct business. That day, Sarles organized a phone call regarding “Crown
Forex.” FINMA two weeks later announced Crown Forex, SA would be liquidated.
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Three days later, Sarles organized an “important” phone call with Cook. After the
liquidation of Crown Forex, SA, Associated Bank continued to approve transfers of
millions of dollars out of the Crown Forex LLC account to other accounts apparently
unassociated with Crown Forex, SA, even though Associated Bank knew the Crown
Forex LLC account had been set up as a vehicle for investments into Crown Forex,
SA.
In June 2009, Cook asked Sarles to open an account for another fictitious
entity, Basel Group LLC, “exactly like the Crown set-up.” Like Crown Forex LLC,
Basel Group LLC submitted an account application “prepared by” an Associated
Bank employee, falsely asserting website verification of its registration with the
secretary of state. At least within nine days of opening the account, Sarles knew
Basel Group LLC did not have registration documentation listed on the Minnesota
Secretary of State’s website. There is no indication in the record Sarles did anything
to follow up on the discrepancy.
In late June 2009, Associated Bank allowed Cook to transfer $600,000 of
investors’ money from the Crown Forex LLC account to Cook’s personal
account—for the stated purpose of buying a yacht. Sarles later “personally observed”
Cook walk out the bank door carrying $600,000 in cash. The mechanics of this
transfer “raised a red flag” for one bank employee and caused another to write to
Sarles, “Is this guy on the up and up . . . something feels uncomfortable with him.”
On June 29, 2009, near the end of the scheme, Associated Bank prepared
fourteen cashier’s checks for over $3.2 million from the Crown Forex LLC account.
The cashier’s checks’ remitter information never identified Crown Forex LLC as the
source of the funds, instead naming false remitters. Even after the Star Tribune
published a newspaper article about a lawsuit filed against the Ponzi scheme
principals, Associated Bank still approved a transfer of $101,000 of investor funds
to the fictitious Basel Group LLC. A week later, Sarles was fired.
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Cook stated he “d[id]n’t think that [Sarles] thought anything was wrong with”
opening an account for Crown Forex LLC rather than Crown Forex, SA. Cook
claimed he “d[id]n’t think [Sarles] thought there was a fraud going on.” Cook stated
the schemers told Sarles “the Crown Forex, LLC account was part of Crown Forex,
and it was on their books, so I’m not so sure I’d say [Sarles] knew something, you
know, fishy was going on.”
B. Procedural History
The receiver’s complaint brought four Minnesota state law claims against
Associated Bank, each for aiding and abetting: fraud (Count I); breach of fiduciary
duty (Count II); conversion (Count III); and false representations and omissions
(Count IV).3 The district court dismissed, with prejudice, all four counts for failing
to state a claim. See Fed. R. Civ. P. 12(b)(6). Pursuant to local rule, the receiver
requested leave to file a motion for the district court to consider amending the
dismissal to be without prejudice, so as to allow the receiver to amend the complaint,
but the district court denied the request. The receiver appeals both orders.
II. DISCUSSION
“Whether a complaint states a cause of action is a question of law,” and our
“review on appeal [is] de novo.” Miller v. Redwood Toxicology Lab., Inc., 688 F.3d
928, 936 (8th Cir. 2012). “A copy of a written instrument that is an exhibit to a
pleading is a part of the pleading for all purposes.” Fed. R. Civ. P. 10(c). “‘For that
reason, a court ruling on a motion to dismiss under Rule 12(b)(6) may consider
material attached to the complaint.’” Quinn v. Ocwen Fed. Bank FSB, 470 F.3d
1240, 1244 (8th Cir. 2006) (per curiam) (quoting Abels v. Farmers Commodities
3
At a motion hearing, the district court seemed to dismiss Count IV because the
receiver conceded it duplicated Count I. Yet in its written order, the district court
addressed Count IV as if it had not been dismissed, and Associated Bank does not
raise the issue here, so we too consider Count IV together with the other three.
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Corp., 259 F.3d 910, 921 (8th Cir. 2001)). We consider the many attachments to the
receiver’s complaint, including Sarles’s affidavit. See Rasidescu v. Globe Coll., Inc.,
105 F. App’x 121, 123 (8th Cir. 2004) (unpublished per curiam).
“Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain
statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give
the defendant fair notice of what the . . . claim is and the grounds upon which it
rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original)
(quoting Fed. R. Civ. P. 8(a)(2) and Conley v. Gibson, 355 U.S. 41, 47 (1957)). “To
survive a 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 Twombly, 550 U.S. at 570). “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.
We consider “[t]wo working principles,” id., in our analysis. “First, the tenet
that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Id. “Second, only
a complaint that states a plausible claim for relief survives a motion to dismiss.
Determining whether a complaint states a plausible claim for relief will . . . be a
context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679 (internal citation omitted). “[A] well-
pleaded complaint may proceed even if it strikes a savvy judge that actual proof of
those facts is improbable, and ‘that a recovery is very remote and unlikely.’”
Twombly, 550 U.S. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
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A. Aiding and Abetting Claims
In Minnesota, a tort claim for aiding and abetting has three elements:
(1) the primary tortfeasor must commit a tort that causes an injury to
the plaintiff;
(2) the defendant must know that the primary tortfeasor’s conduct
constitutes a breach of duty; and
(3) the defendant must substantially assist or encourage the primary
tortfeasor in the achievement of the breach.
Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 187 (Minn. 1999) (en
banc). The second and third elements are in dispute in this case, and they are
evaluated “in tandem.” Id. at 188 (quotation omitted). “Whether the requisite degree
of knowledge or assistance exists depends in part on the particular facts and
circumstances of each case.” Id. We consider “[f]actors such as the relationship
between the defendant and the primary tortfeasor, the nature of the primary
tortfeasor’s activity, the nature of the assistance provided by the defendant, and the
defendant’s state of mind.” Id.
“[Federal] Rule [of Civil Procedure] 9(b)’s particularity requirement for fraud
applies equally to a claim for aiding and abetting.” E-Shops Corp. v. U.S. Bank N.A.,
678 F.3d 659, 663 (8th Cir. 2012) (applying Minnesota substantive law). “Rule 9(b)
requires plaintiffs to plead ‘the who, what, when, where, and how: the first paragraph
of any newspaper story.’” Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir.
2011) (quoting Great Plains Trust Co. v. Union Pac. R.R., 492 F.3d 986, 995 (8th Cir.
2007)). Still, as Associated Bank concedes, “knowledge . . . may be alleged
generally.” Fed. R. Civ. P. 9(b). “But ‘generally’ is a relative term. . . . Rule 9 . . .
does not give [a party] license to evade the less rigid—though still
operative—strictures of Rule 8.” Iqbal, 556 U.S. at 686-87.
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1. Actual Knowledge
“[A]iding and abetting liability is based on proof of a scienter—the defendants
must know that the conduct they are aiding and abetting is a tort.” Witzman, 601
N.W.2d at 186. “An aider and abettor’s knowledge of the wrongful purpose is a
‘crucial element in aiding or abetting’ cases.” E-Shops, 678 F.3d at 663 (quoting
FDIC v. First Interstate Bank of Des Moines, N.A., 885 F.2d 423, 431 (8th Cir.
1989)).
The receiver alleges Sarles—and thus Associated Bank—actually knew he was
helping the schemers perpetuate their fraud, breach a fiduciary duty, convert the
investors’ money, and make false representations and omissions. As to “the
relationship between the defendant and the primary tortfeasor,” Witzman, 601
N.W.2d at 188, Sarles was introduced to Kiley by Sarles’s step-brother, who worked
for Kiley, and Sarles visited Kiley at his home, which doubled as Kiley’s place of
business, before Kiley appeared at the bank to open an account. Sarles knew the
Crown Forex LLC account was ostensibly created as a vehicle for investors to be able
to take part in the schemers’ so-called investment plan, and Sarles knew the money
in the Crown Forex LLC account was to be transferred to a Crown Forex, SA account
in order to accomplish the planned investment. Yet none of the transfers of investors’
funds Sarles facilitated were from Crown Forex LLC to Crown Forex, SA.
Sarles actually knew Crown Forex LLC was not registered with the Secretary
of State of Minnesota when Associated Bank accepted the account application stating
registration documentation was gleaned from the secretary’s website. Sarles stated
in his affidavit, “I told Kiley that he must send the documentation to me after he
completed a Secretary of State filing for Crown Forex LLC.” (Emphasis added). But
this fact did not stop Sarles from personally helping Kiley and Smith open the
account and signing a document on behalf of Associated Bank stating Crown Forex
LLC was organized under the laws of Minnesota. Sarles knew Associated Bank’s
monitoring department would freeze or close accounts without proper documentation,
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and he knew Crown Forex LLC did not submit the documentation. Sarles admits he
never contacted Kiley about the missing documentation to prevent Kiley’s account
from being frozen or closed.
Finally, even though Sarles actually knew Kiley and Smith were the signatories
on the Crown Forex LLC account, Sarles knowingly authorized Cook, a non-
signatory, to withdraw millions of dollars of investor money and deposit much of it
in Cook’s personal accounts. Associated Bank declares, “it is the obligation of a
bank to permit a customer to transfer or withdraw his or her funds from an account.”
But we accept as true the clearly pled fact that the Crown Forex LLC account funds
Cook withdrew were not Cook’s funds. Associated Bank cannot claim it is obligated
to permit one customer, like Cook, to withdraw another customer’s funds.
To the extent a jury would afford Ponzi schemer Cook’s assertions any
credibility, Cook stated he did not think Sarles knew there was anything “fishy” about
opening the Crown Forex LLC account. We consider Cook’s general statements as
to Sarles’s awareness of the fraud alongside the other well-pled facts in the complaint.
See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (“[T]he
complaint should be read as a whole, not parsed piece by piece to determine whether
each allegation, in isolation, is plausible.”). And despite Associated Bank’s
assertions—(1) to the district court that the receiver “has deposed the relevant
players,” and (2) to this court that the receiver “knows essentially everything he is
ever going to know about what happened here”—the key player in this case, Sarles,
has not been deposed by anyone, as far as we know.
The district court emphasized ¶ 74 of the complaint, which states, “Had
Associated Bank investigated any of the numerous red flags it had before it as raised
by several employees, Associated Bank would have uncovered and prevented the
Ponzi scheme from flourishing.” The district court read ¶ 74 as an admission by the
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receiver that Associated Bank did not have actual knowledge of the scheme, but
merely “should have known” about the scheme from the various “red flags” in view.
But reading the complaint “as a whole,” Braden, 588 F.3d at 594, the receiver
“generally alleges the knowledge element in multiple paragraphs” and “also alleges
circumstances strongly indicating knowledge” as to Sarles in particular, Anderson v.
U.S. Bank N.A., No. A13-0677, 2014 WL 502955, at *6 (Minn. Ct. App. Feb. 10,
2014) (unpublished). The receiver’s “complaint details the Ponzi transactions,
including dates and amounts of deposits and withdrawals, spanning over a period of
several years. Given [Associated Bank’s] vigorous denial of having known of the
Ponzi scheme, it is hard to envision how knowledge might be pleaded with any more
particularity than [the receiver] has pleaded it.” Anderson, 2014 WL 502955, at *6.
We conclude the facts as alleged in the receiver’s complaint state “a plausible
claim,” Iqbal, 556 U.S. at 679, of the actual knowledge aiding and abetting element.
Because we find the receiver adequately pled actual knowledge, we need not consider
the receiver’s alternate argument that constructive knowledge of the scheme by
Associated Bank could also suffice.
2. Substantial Assistance
“In addressing aiding and abetting liability in cases involving professionals,
most courts have recognized that ‘substantial assistance’ means something more than
the provision of routine professional services.” Witzman, 601 N.W.2d at 188-89; see
Anderson, 2014 WL 502955, at *5 (finding “Witzman’s special-policy concerns
regarding professionals apply with some force to banks”). “Some affirmative step is
required, because ‘the mere presence of the particular defendant at the commission
of the wrong, or his failure to object to it, is not enough to charge him with
responsibility.’” Am. Bank of St. Paul v. TD Bank, N.A., 713 F.3d 455, 462 (8th Cir.
2013) (quoting Witzman, 601 N.W.2d at 189). “Assistance must ‘further the fraud
itself, and not merely constitute general aid to the tortfeasor.’” Anderson, 2014 WL
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502955, at *7 (quoting El Camino Res., Ltd. v. Huntington Nat’l Bank, 722 F. Supp.
2d 875, 910-11 (W.D. Mich. 2010)).
The district court found the receiver did not adequately plead Associated Bank
provided substantial assistance in the Ponzi scheme. But the district court does not
mention the fact Sarles knowingly opened a bank account for a non-registered entity
to hold investors’ money and then authorized Cook, a non-signatory, to withdraw
millions of dollars of investor money and deposit much of it into Cook’s personal
accounts. These were not routine transfers, see Witzman, 601 N.W.2d at 189, nor
“quintessential banking activities,” as Associated Bank describes them. Taking the
well-pled facts as true, as we must, a jury reasonably could infer Associated Bank,
through its vice president Sarles, knowingly opened undocumented bank accounts
and facilitated the unauthorized transfer of investors’ funds into the schemers’
personal accounts—an obvious misappropriation.
We cannot predict whether a jury, surveying the evidence supplemented by
discovery, will find Associated Bank either had actual knowledge of or substantially
assisted in the asserted torts. But the facts alleged in the complaint give the receiver’s
claims “facial plausibility”—the receiver has pled “factual content that allows the
court [and a jury] to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678.
B. Associated Bank’s Affirmative Defenses
1. Motion to Determine
In Associated Bank’s memorandum in support of its motion to dismiss, it also
urged dismissal pursuant to the doctrines of res judicata and in pari delicto. The
district court did not reach these issues because it dismissed the receiver’s complaint
for failure to state a claim. In its appellate brief, Associated Bank renewed the two
arguments as alternative bases for affirmance. The receiver then filed a “motion to
determine whether issues raised by [Associated Bank] without having filed a cross-
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appeal are within the scope of this appeal,” claiming Associated Bank should have
filed a cross-appeal for this court to consider either of the alternative bases for
dismissal.
The U.S. Supreme Court informs us when a cross-appeal is needed: “[A] party
who does not appeal from a final decree of the trial court cannot be heard in
opposition thereto when the case is brought there by the appeal of the adverse party.
In other words, the appellee may not attack the decree with a view . . . to enlarging
his own rights thereunder.” United States v. Am. Ry. Exp. Co., 265 U.S. 425, 435
(1924). “But it is likewise settled that the appellee may, without taking a cross-
appeal, urge in support of a decree any matter appearing in the record, although his
argument may involve an attack upon the reasoning of the lower court or an
insistence upon matter overlooked or ignored by it.” Id.; see also Spirtas Co. v.
Nautilus Ins. Co., 715 F.3d 667, 670-71 (8th Cir. 2013) (explaining when a party “is
attempting only to sustain the same judgment on a different basis in the record, a
cross-appeal is not required”).
The receiver alleges a judgment of dismissal on the basis of res judicata “would
enlarge [Associated Bank’s] rights under the judgment” because it would allow
Associated Bank to “contend that all future hypothetical counts whose gravamen is
the Bank’s assistance in defrauding investors — no matter what form, and regardless
of whether it is ripe or presently-knowable — would be barred.” The receiver also
proposes “[a] judgment of in pari delicto” would allow Associated Bank “to contend
that all hypothetical claims of any form by any of the Receivership entities — even
those that are not yet ripe because they are hidden by the Bank’s concealment, thus
tolling any limitations period — would be doomed.”
The receiver “confuses a party’s rights under a judgment . . . with preclusive
effects that the judgment might have in future proceedings.” Jennings v. Stephens,
574 U.S. ___, ___, 135 S. Ct. 793, 799 (2015). “Whenever an appellee successfully
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defends a judgment on an alternative ground, he changes what would otherwise be
the judgment’s issue-preclusive effects. Thereafter, issue preclusion no longer
attaches to the ground on which the trial court decided the case, and instead attaches
to the alternative ground on which the appellate court affirmed the judgment.” Id.
No cross-appeal was required for Associated Bank to suggest alternative bases for the
same judgment the district court issued—dismissal of the complaint.
2. Res Judicata
In October 2009, six defrauded investors of this Ponzi scheme brought suit
against Associated Bank in Wisconsin state court, which dismissed their complaint
for failure to state aiding and abetting claims, among others. Affirming, the
Wisconsin Court of Appeals concluded “the circuit court properly dismissed [the
plaintiffs’] aiding and abetting claim because [they] did not allege that Associated
intended to assist the customer’s tortious conduct—a necessary element of aiding and
abetting liability.” Grad v. Associated Bank, N.A., 801 N.W.2d 349, 2011 WL
2184335, at *1 (Wis. Ct. App. 2011) (unpublished table decision). Associated Bank
argues the Grad decision precludes the receiver from pursuing any claims against
Associated Bank on behalf of any of the receiver entities, even though the entities
were not parties to the Grad action, because the receiver was in privity with the Grad
plaintiffs.
Without the district court’s careful examination of the circumstances of this
case and “the benefit of the district court’s analysis,” Bell v. Pfizer, Inc., 716 F.3d
1087, 1096 (8th Cir. 2013), we decline to address the res judicata defense. “‘[W]e
leave [it] to be addressed in the first instance on remand, without expressing any view
as to [its] merit.’” Beckon, Inc. v. AMCO Ins. Co., 616 F.3d 812, 820 (8th Cir. 2010)
(second and third alterations in original) (quoting Discovery Grp. LLC v. Chapel
Dev., LLC, 574 F.3d 986, 990 (8th Cir. 2009)).
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3. In Pari Delicto Doctrine
The doctrine of in pari delicto, an “equitable defense,” “operates to prevent
wrongdoers at equal fault from recovering against one another and ‘is based upon
judicial reluctance to intervene in disputes between [wrongdoing] parties.’”
Christians v. Grant Thornton, LLP, 733 N.W.2d 803, 814 (Minn. Ct. App. 2007)
(alteration in original) (quoting State by Head v. AAMCO Automatic Transmissions,
Inc., 199 N.W.2d 444, 448 (Minn. 1972)). “[E]quitable decisions are discretionary.”
Id. at 815. “A paramount public interest . . . may call for judicial intervention in favor
of one wrongdoer against the other in order to effectuate the enforcement of a public
policy which overrides considerations of a benefit inuring to a wrongdoer.”
AAMCO, 199 N.W.2d at 448.
The district judge, in a case related to this case, ordered the appointment of the
receiver in response to an SEC motion and memorandum determining “a receiver is
necessary during the pendency of this litigation to marshal, conserve and recover
assets for investors and to prevent any further dissipation of assets.” Thus the
plaintiff here was appointed receiver for the estates of Cook and Kiley, and entities
controlled by them. Another related case held that “[b]ecause this case involves a
Ponzi scheme, the Receivership Entities are considered victims of the fraud and thus
creditors of the Ponzi scheme.” Zayed v. Peregrine Fin. Grp., Inc., Civ. No. 12-269,
2012 WL 2373423, at *2 (D. Minn. June 22, 2012) (unpublished); see also Scholes
v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995) (“Freed from [the schemers’] spell [the
receiver entities] became entitled to the return of the moneys—for the benefit not of
[the schemers] but of innocent investors—that [the schemers] had made the [receiver
entities] divert to unauthorized purposes.”).
We are mindful that the Minnesota Supreme Court advises that the in pari
delicto doctrine should be applied critically, see AAMCO, 199 N.W.2d at 448 (“We
do not forecast an uncritical application of this doctrine, for it is not without
exception”), and we consider Christians’ emphasis on the discretionary nature of this
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equitable decision, see Christians, 733 N.W.2d at 815. We decline to “judicial[ly]
interven[e],” AAMCO, 199 N.W.2d at 448, without the benefit of the district court
having addressed the in pari delicto defense in the first instance. We remand to the
district court for its determination of the issue and, as with the res judicata affirmative
defense, we do not express any view on the merits.
C. Request for Leave to Amend
Because we conclude the receiver’s complaint did state a claim and Associated
Bank’s motion to dismiss was improperly granted, we do not consider the receiver’s
appeal of the district court’s order denying the receiver’s request for leave to file a
motion to reconsider.
III. CONCLUSION
We reverse the district court’s order granting Associated Bank’s motion to
dismiss the receiver’s complaint and remand to the district court for further
proceedings consistent with this opinion.
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