Praither v. Northbrook Bank & Trust Co. , 2021 IL App (1st) 201192 ( 2021 )

Digitally signed
by Reporter of
Decisions
Reason: I attest to
Illinois Official Reports the accuracy and
integrity of this
document
Appellate Court Date: 2022.08.03
10:26:44 -05'00'
Praither v. Northbrook Bank & Trust Co., 2021 IL App (1st) 201192Appellate Court JOHN PRAITHER and MARCELLO CALIVA, Individually and on
Caption Behalf of a Class of Similarly Situated Individuals, Plaintiffs-
Appellants, v. NORTHBROOK BANK & TRUST COMPANY, an
Illinois Chartered State Bank, and TAMER MOUMEN, Defendants-
Appellees.
District & No. First District, Sixth Division
No. 1-20-1192
Filed July 30, 2021
Decision Under Appeal from the Circuit Court of Cook County, No. 2018-CH-12935;
Review the Hon. Sophia Hall, Judge, presiding.
Judgment Affirmed.
Counsel on Alexander N. Loftus, of Loftus & Eisenberg, Ltd., of Chicago, for
Appeal appellants.
Michael P. Conway, Kristina K. Cercone, and Taylor M. Grode, of
Jones Day, of Chicago, for appellee Northbrook Bank and Trust
Company.
No brief filed for other appellee.
Panel JUSTICE HARRIS delivered the judgment of the court, with opinion.
Justices Connors and Oden Johnson concurred in the judgment and
opinion.
OPINION
¶1 Plaintiffs, John Praither and Marcello Caliva, individually and on behalf of a class of
similarly situated individuals, appeal the judgment of the circuit court granting defendant
Northbrook Bank & Trust Company’s (Northbrook) motion to dismiss plaintiffs’ second-
amended complaint pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS
5/2-615 (West 2016)). On appeal, plaintiffs contend the court erred in dismissing their second-
amended complaint where the complaint sufficiently pled facts that (1) defendant Northbrook
failed to exercise ordinary care to protect plaintiffs from defendant Tamer Moumen’s fraud,
(2) Northbrook was liable for violations of the Fiduciary Obligations Act (Act) (760 ILCS 65/1
et seq. (West 2016)), and (3) Northbrook aided and abetted Moumen’s breach of fiduciary
duty. For the following reasons, we affirm.
¶2 I. JURISDICTION
¶3 The trial court dismissed plaintiffs’ second-amended complaint on October 29, 2020.
Plaintiffs filed their notice of appeal on November 3, 2020. Accordingly, this court has
jurisdiction pursuant to Illinois Supreme Court Rule 301 (eff. Feb. 1, 1994) and Rule 303 (eff.
July 1, 2017), governing appeals from final judgments entered below.
¶4 II. BACKGROUND
¶5 Plaintiffs invested in hedge funds managed by Moumen. As part of his investment business,
Moumen maintained three accounts at Northbrook. Two accounts, the Crescent Ridge
Volatility Fund (CRVF) and the Crescent Ridge Energy Fund (CREF), were set up to receive
initial investments. The third fund, Crescent Ridge Capital Partners (CRCP), belonged to the
partnership managing the funds, which was an entity created and controlled by Moumen. To
invest in a fund, parties such as plaintiffs wired money into the CRVF or CREF. Plaintiffs
wired the money from their personal bank accounts or an IRA custodian.
¶6 Plaintiffs alleged that Moumen set up the Northbrook accounts as part of a Ponzi scheme
in which he used money from new investors to pay other investors. Plaintiffs also alleged that
Moumen used the money from the CRVF and CREF for personal expenses. In March 2017,
Moumen was arrested by the Federal Bureau of Investigation (FBI), and in October 2017, he
was sentenced to 10 years in prison. He was also ordered to pay restitution in the amount of
$7,570,831.59.
¶7 In October 2018, plaintiffs filed a complaint against Northbrook and Moumen. The
complaint alleged three counts: count I (negligence), count II (aiding and abetting breach of
fiduciary duty) against Northbrook, and count III (unjust enrichment) against Moumen.
Northbrook filed a motion to dismiss, arguing that plaintiffs failed to identify a source of duty
on Northbrook’s part toward noncustomers such as plaintiffs and that no laws or regulations
-2-
obligated Northbrook to freeze Moumen’s accounts or alert investors of Moumen’s actions.
The trial court granted the motion.
¶8 Plaintiffs subsequently filed a first-amended complaint, which added a count against
Northbrook for breach of the Act. Northbrook filed a motion to dismiss the three counts against
them, and the trial court granted the motion without prejudice, finding that plaintiffs failed to
allege facts sufficient to support their claims. Plaintiffs subsequently filed a second-amended
complaint against defendants Northbrook and Moumen. Counts I through III alleged
negligence, aiding and abetting breach of fiduciary duty, and violations of the Act against
Northbrook. Count IV alleged a claim of unjust enrichment against Moumen.
¶9 Plaintiffs alleged the following facts in the second-amended complaint. Plaintiffs invested
in CRVF and CREF by wiring money into the funds from “either their personal bank account
or an IRA Custodian.” The fund accounts were held at Northbrook. Plaintiffs “relied on the
fact that the money was being sent to a reputable bank trust for deposit when choosing to invest
in CRVF or CREF.” Once they made an investment in one of these funds, plaintiffs became
limited partners “upon subscription and acceptance by” Moumen, the general partner. From
February 2013 to February 2017, investors deposited $6.6 million into the CRVF and CREF
accounts at Northbrook.
¶ 10 As the general partner, Moumen was entitled to charge a management fee equal to 1%
annually of each limited partner’s share, plus a performance allocation of 17.5% of the funds’
annual income. The complaint stated that “[t]his fee structure is quite common in *** hedge
funds” like CRVF and CREF. This fee structure was outlined in the private placement
memorandum (PPM), a copy of which was given to Northbrook.
¶ 11 Plaintiffs alleged that “Moumen misappropriated investor funds by causing funds to be
transferred” from the accounts at Northbrook to his personal accounts, as shown by the
following:
a. In March 2015, an investor wired $42,000 from his individual retirement account
(IRA) with Kingdom Trust to the CRVF, and the next day Moumen wired $42,000
from the CRVF account to his personal brokerage account at TD Ameritrade.
b. In November 2014, an investor deposited $200,000 into the CRVF, and that same
day, Moumen transferred $38,000 to a Bank of America account in his name. Moumen
transferred another $150,000 to a personal brokerage account at TD Ameritrade.
c. On January 27, 2015, investors wired $169,000 to the CRVF, which had a
balance of $0, and that day Moumen transferred $18,000 to his personal account at
Bank of America. Moumen then purchased a cashier’s check to pay rent on his personal
residence.
d. On February 3, 2016, an investor wired $240,000 into the CRVF, which had a
balance of $152. Moumen then transferred $92,000 to the CRCP and, the next day,
wired $90,188 from the CRCP account to Tesla Motors for purchase of a vehicle.
e. On August 25, 2016, an investor deposited $47,000 into the CRVF, which was
overdrawn at the time. Four days later, Moumen transferred $46,600 to his personal
account at Bank of America. He used these funds to pay a personal tax liability.
Moumen also used funds from new investors to pay earlier investors. On May 13, 2015, after
an investor deposited $131,000 into the CRVF, Moumen paid $36,000 from this account to
-3-
another investor. Likewise, On August 31, 2015, after an investor wired $250,000 into the
CRVF, Moumen paid an earlier investor $75,000 from the account.
¶ 12 Plaintiffs alleged that, pursuant to regulations prescribed under the Bank Secrecy Act
(BSA) (12 U.S.C. § 5311 et seq. (2018)), Northbrook must collect information about the
holders of all of its accounts. Therefore, in accordance with its obligations under the BSA,
Northbrook “developed, administered, and maintained a program that ensured compliance with
the BSA.” “[U]pon information and belief,” Northbrook complied with the controlling
regulations. Plaintiffs alleged that “Northbrook Bank was fully compliant with the BSA and
by complying with the BSA and its various requirements to ‘know the customer,’ Moumen
and the [funds], it had actual knowledge of Moumen’s fraudulent scheme soon after it became
clear Moumen was not investing client money in any way.”
¶ 13 Although Northbrook was compliant with federal regulations, the complaint alleged that it
did not enforce or implement the policies put in place to prevent money laundering. One
requirement was the appointment of a third-party administrator to oversee the funds’
transactions. Northbrook contacted Moumen and informed him that he needed an administrator
and even threatened to terminate its business relationship with Moumen. Moumen, however,
never named a third-party administrator.
¶ 14 Plaintiffs alleged that Northbrook also contacted Moumen to inquire about several transfers
of money into his personal account. Moumen told Northbrook that he was paying himself fees
by using his personal account as a pass-through account. Northbrook accepted Moumen’s
explanation. Plaintiffs alleged that Northbrook enabled Moumen to perpetrate his scheme by
failing “to adhere to the regulatory guidance, banking industry standards, and its own policies”
and by not responding to “the obvious suspicious nature of the transactions.”
¶ 15 In December 2016, Northbrook was served with a subpoena from the FBI seeking records
for the Northbrook fund accounts. Northbrook contacted Moumen “within days of receiving
the federal subpoena.” Northbrook also filed a Suspicious Activity Report. See 12 C.F.R.
§ 21.11 (2010). A few months later, Moumen was arrested by the FBI. In October 2017,
Moumen was sentenced to 10 years in prison and ordered to pay plaintiffs $7,570,831.59 in
restitution.
¶ 16 Northbrook filed a section 2-615 motion to dismiss, arguing that count I fails because
plaintiffs did not allege a source of duty on the part of Northbrook and, furthermore, they failed
to identify any regulation or industry standard that would have obligated Northbrook to freeze
Moumen’s accounts or alert investors of his actions. Counts II and III fail because plaintiffs
did not allege facts showing Northbrook actually knew of or refrained in bad faith from
investigating Moumen’s activities.
¶ 17 After a hearing, the trial court granted the motion to dismiss with prejudice. The court again
found the complaint did not allege sufficient facts to support plaintiffs’ conclusions. Plaintiffs
filed a notice of appeal, but this court dismissed the appeal because the trial court’s order did
not dispose of the claim against Moumen. See Praither v. Northbrook Bank & Trust Co., 2020
IL App (1st) 192451-U. On remand, plaintiffs moved to voluntarily dismiss the count against
Moumen, and on October 29, 2020, the trial court entered a final order. Plaintiffs filed this
appeal.
-4-
¶ 18 III. ANALYSIS
¶ 19 First, we address plaintiffs’ contention that the trial court erred in dismissing their
negligence claim. In an action for negligence, plaintiffs must establish that Northbrook owed
a duty to them, Northbrook breached that duty, and the breach proximately caused an injury to
plaintiffs. Choate v. Indiana Harbor Belt R.R. Co., 2012 IL 112948, ¶ 22. “A legal duty refers
to a relationship between the defendant and the plaintiff such that the law imposes on the
defendant an obligation of reasonable conduct for the benefit of the plaintiff.” Id. Without a
duty, plaintiffs cannot recover for negligence. Vesey v. Chicago Housing Authority, 145 Ill. 2d
404, 411 (1991). Whether a duty exists is a question of law we review de novo. Bucheleres v.
Chicago Park District, 171 Ill. 2d 435, 445 (1996).
¶ 20 Our supreme court has acknowledged that “duty” is not a fact discoverable in nature; rather,
it is an involved, complex, and nebulous concept. Marshall v. Burger King Corp., 222 Ill. 2d
422, 435 (2006). Under common law, a duty of ordinary care may be found after consideration
of the following factors: “(1) the reasonable foreseeability of the injury, (2) the likelihood of
the injury, (3) the magnitude of the burden of guarding against the injury, and (4) the
consequences of placing that burden on the defendant.” Simpkins v. CSX Transportation, Inc.,
2012 IL 110662, ¶ 18. Whether these factors are sufficient to establish a duty depends on the
public policy considerations inherent to the analysis of a particular case. Id. The weight
accorded to each factor is also case-specific. Id.¶ 21 “As with attorneys and accountants, the law has long imposed on banks a duty of
reasonable care ***.” Mutual Service Casualty Insurance Co. v. Elizabeth State Bank, 265
F.3d 601, 618 (7th Cir. 2001). For example, in Illinois “a bank’s failure to observe ordinary
care in handling its customer’s transactions may support a tort claim.” Id. (citing Menerey v.
Citizens First National Bank, 160 Ill. App. 3d 223 (1987)). Plaintiffs, however, admitted that
they were not customers of Northbrook and did not hold accounts there. Illinois courts have
consistently held that banks do not owe a general duty of care to noncustomers. See Thompson
v. Capital One Bank, Inc., 375 F. Supp. 2d 681, 683-84 (N.D. Ill. 2005). In the absence of a
duty Northbrook owed to plaintiffs, their negligence claim must fail.
¶ 22 Plaintiffs, however, argue that Northbrook owed them a duty of care because “[e]ach
person has a duty to use ordinary care so that he does not cause injury or damage to others,”
citing Stribling v. Chicago Housing Authority, 34 Ill. App. 3d 551 (1975). Plaintiffs contend
that, pursuant to Stribling, Northbrook should have exercised its ordinary duty of care by
closing or freezing the affected accounts in order to prevent damage to plaintiffs.
¶ 23 In Stribling, the tenants of an apartment building owned by the defendant observed people
entering and leaving vacant apartments. Id. at 553. Their apartment was burglarized when the
offenders made a hole through the wall separating the tenants’ apartment and a vacant
apartment. They notified defendant, but defendant failed to respond. A second burglary into
the apartment occurred a month later, using the same method. Id. at 554. The court found that,
after having notice of the first burglary, the second burglary “became eminently foreseeable.”
Id. at 556. Thus, defendant owed a duty to its tenants to guard against the subsequent burglary.
Id.¶ 24 Stribling is inapposite. Stribling involved the question of duty on the part of a building
owner to a tenant. Here, the question is whether Northbrook owed a duty to plaintiffs, who
were not customers of Northbrook. As a result, the policy considerations inherent in Stribling
differ vastly from the considerations relevant here.
-5-
¶ 25 Furthermore, the court in Stribling found a duty because the building owner could
reasonably foresee criminal activity where the affected tenants had informed them of previous
break-ins. The likelihood of the injury in Stribling “became eminently foreseeable” based on
the owner’s knowledge. Id. Here, plaintiffs did not allege that a party facing harm directly
informed Northbrook of Moumen’s wrongdoing or that an employee raised concerns about
Moumen’s transfers. Instead, they generally alleged that Northbrook must have known about
Moumen’s criminal activity because it fully complied with the monitoring requirements of the
BSA. The knowledge plaintiffs attribute to Northbrook does not compare to the immediacy of
the building owner’s knowledge of the situation in Stribling. Thus, Stribling does not support
their claim that Northbrook had a duty of ordinary care towards them.
¶ 26 Plaintiffs next contend that their complaint sufficiently alleged a claim under the Act,
where Northbrook had actual knowledge that Moumen breached his fiduciary duty to them. At
common law, a third party such as Northbrook could be held liable to the principal if it
negligently assisted a fiduciary who misappropriated the principal’s funds. Appley v. West, 832
F.2d 1021, 1029 (7th Cir. 1987). The Uniform Fiduciaries Act (Unif. Fiduciaries Act § 6,
Comment, 7A U.L.A. 410 (1985)), which Illinois codified and titled the Fiduciary Obligations
Act, was designed to change that case law. County of Macon v. Edgcomb, 274 Ill. App. 3d 432,
435 (1995); Appley, 832 F.2d at 1030-31.
¶ 27 The purpose of the Act is “to facilitate the fiduciary’s performance of his responsibilities
by limiting the liability of those who deal with him.” Bellflower AG Service, Inc. v. First
National Bank & Trust Co., 130 Ill. App. 3d 80, 85 (1985). It covers situations where a party
“honestly deals with another knowing him to be a fiduciary.” Johnson v. Citizens National
Bank of Decatur, 30 Ill. App. 3d 1066, 1069-70 (1975). Under these circumstances, the
depository bank is relieved of the duty to ensure that the funds are properly applied, and the
principal bears the “burden to employ honest fiduciaries.” Id. at 1070. There is a strong policy
reason supporting this position: given the number of transactions that run through banks,
“restrict[ing] all deposits until [the bank satisfies] itself that the depositor is entitled to the
money would pour molasses on the gears of commerce.” Bell Brothers v. Bank One, Lafayette,
N.A., 116 F.3d 1158, 1160 (7th Cir. 1997).
¶ 28 While the Act relieves a bank of liability for negligence regarding the fiduciary’s
misconduct, it allows a cause of action when the bank has actual knowledge that the fiduciary
is breaching his obligation or “ ‘has knowledge of facts that its action in paying the checks
amounts to bad faith.’ ” Mikrut v. First Bank of Oak Park, 359 Ill. App. 3d 37, 49 (2005)
(quoting Go-Tane Service Stations, Inc. v. Sharp, 78 Ill. App. 3d 785, 789-90 (1979)). “Actual
knowledge” is “ ‘the awareness at the moment of the transaction that the fiduciary is defrauding
the principal’ or having express factual information” that the fiduciary’s use of funds is
improper. (Internal quotation marks omitted.) Time Savers, Inc. v. La Salle Bank, N.A., 371 Ill.
App. 3d 759, 768 (2007) (quoting Continental Casualty Co. v. American National Bank &
Trust Co. of Chicago, 329 Ill. App. 3d 686, 703 (2002)). Actual knowledge may be based on
circumstantial or direct evidence. People v. Hinton, 402 Ill. App. 3d 181, 185 (2010). However,
whichever evidence is used, “the inference of knowledge must [be] ‘based on established facts
and not pyramided on an intervening inference.’ ” Id. (quoting People v. Pinta, 210 Ill. App.
3d 1071, 1078 (1991)). Mikrut and Time Savers illustrate this point.
¶ 29 In Mikrut, the plaintiffs alleged that their fiduciary, Anthony Capetta, improperly endorsed
checks representing proceeds from their brother’s estate and deposited them into his escrow
-6-
account for clients at First Bank of Oak Park (First Bank). Mikrut, 359 Ill. App. 3d at 41.
Capetta, who was not authorized to endorse the checks, improperly forged their endorsements
before depositing them into the escrow account. The plaintiffs further alleged that Capetta then
spent the funds for his personal benefit. Id. at 42-43.
¶ 30 To support their allegations, the plaintiffs presented evidence showing that (1) Capetta had
been a customer of First Bank for many years; (2) he had three personal accounts at First Bank
in addition to the client escrow account; (3) Capetta and his wife obtained a mortgage at First
Bank, secured by real property, in the amount of $310,000; and (4) Capetta provided legal
services to three principals at First Bank, including drafting wills, setting up trusts, and
assisting in the purchase of real estate. Id. at 43-44. The plaintiffs contended that, from these
facts, one could conclude that Capetta had a relationship with high-ranking First Bank officers
and that First Bank had access to Capetta’s financial information. As a result, First Bank should
have discovered that Capetta’s personal expenditures exceeded his income, and a trier of fact
could infer that First Bank had sufficient knowledge of the fraudulent nature of the
transactions. Id. at 50.
¶ 31 This court found that the evidence failed to show First Bank had actual knowledge that
Capetta was breaching his fiduciary duty in depositing the checks. Id. We noted that an
organization’s knowledge “is determined by the knowledge of the individual who conducts the
transaction.” Id. “Specifically, plaintiffs have failed to provide any evidence that the individual
or individuals at First Bank who conducted the transaction and accepted the checks at issue
had any such knowledge.” Id. at 51. With no facts establishing this knowledge, the plaintiffs
could not show actual knowledge as required to hold First Bank liable for Capetta’s actions.
Id.¶ 32 In Time Savers, Time Savers, Inc. (TSI), sold and rented used trailers and aerial lift
platforms used in construction, painting, and road maintenance. Time Savers, 371 Ill. App. 3d
at 761. TSI was owned by Stephen J. Harrison, who had a 20% interest, and Lawrence C.
Kozlicki, who had an 80% interest. Id. Harrison also owned a separate business, RDSJH
Equipment Venture, LLC (RDSJH), with his partner, Rick Dahl. Id. at 761-62. RDSJH
operated a similar business as TSI.
¶ 33 From 1997 to 2001, TSI obtained revolving credit at La Salle Bank and refinanced and
restructured its debt to La Salle Bank numerous times. By October 2001, TSI’s finances
deteriorated, and its loans were assigned to La Salle Bank’s special assets group. TSI was no
longer a customer of La Salle Bank by May 2002. Id. at 762.
¶ 34 In October 2002, TSI filed a complaint against La Salle Bank and its loan officer. In its
third-amended complaint, TSI alleged that La Salle Bank had actual knowledge that Harrison
embezzled funds from TSI by purchasing equipment for RDSJH using TSI funds and then
renting that equipment to TSI. Id. at 763. Harrison allegedly purchased the equipment with
money from TSI’s revolving credit account, and the account was replenished with funds
Harrison and/or RDSJH subsequently borrowed from La Salle Bank. The complaint alleged
that La Salle Bank had actual knowledge of Harrison’s scheme as shown by various letters and
loan committee documents and from conversations Harrison had with La Salle Bank’s loan
officer, Patrick Stoltz. Id. at 764-65.
¶ 35 This court found, however, that the attached documents “merely show that La Salle knew
Harrison was a fiduciary of TSI, that Harrison was a signatory to TSI’s accounts, and that
Harrison directed TSI funds to be paid to an RDSJH account.” Id. at 770. While TSI alleged
-7-
that La Salle Bank had actual knowledge of wrongdoing through Harrison’s conversations with
Stoltz, TSI provided no details about the conversations. Furthermore, the letters and loan
documents did not “suggest any improprieties on Harrison’s part.” Id. They merely established
that TSI and RDSJH regularly conducted business together and Harrison was part owner of
each business. We noted that TSI cannot defeat a motion to dismiss simply by reciting the
words “actual knowledge.” Id.¶ 36 Pursuant to Mikrut and Time Savers, plaintiffs must plead facts showing that Northbrook
knew of Moumen’s wrongdoing when the transactions occurred. Here, plaintiffs have not
alleged sufficient facts to support that, at the time the transfers occurred, Northbrook knew
Moumen was breaching his fiduciary duty to plaintiffs. Plaintiffs did not allege that
Northbrook’s employees who processed the transfers had any knowledge of Moumen’s
misconduct. See Mikrut, 359 Ill. App. 3d at 50 (finding that an organization’s knowledge “is
determined by the knowledge of the individual who conducts the transaction”). Plaintiffs make
some allegations of transfers from the fund accounts to Moumen’s personal Bank of America
account, and from that account Moumen used money to pay rent on his residence and to pay a
personal tax liability. While this allegation was ostensibly made to show the impropriety of
Moumen’s transfers, it does not establish Northbrook’s actual knowledge, since the money
used to pay these expenses came out of the Bank of America account, not Northbrook.
¶ 37 Plaintiffs alleged in their complaint that Northbrook was fully compliant with the BSA;
Moumen, the funds’ manager, transferred money from the fund accounts to his personal bank
and trading accounts; Northbrook inquired into some of Moumen’s transfers and accepted his
explanation; Northbrook failed to enforce some of its policies including the requirement of a
third-party administrator; Moumen transferred funds to the CRCP and from there funds were
transferred to Tesla; and Moumen paid himself a total of $384,788 from the funds. From these
facts, plaintiffs alleged that Northbrook had actual knowledge of Moumen’s misconduct but
chose to look the other way because it wanted to collect fees and grow its business. They
further alleged that Northbrook knew the $384,788 Moumen paid himself was unreasonable
because his compensation was linked to the funds’ profitability and “there was no profit at any
point, ever.”
¶ 38 Plaintiffs essentially allege that Northbrook should have known that Moumen’s transfers
were improper, given the circumstances of the case. While they may have alleged suspicious
circumstances from which one might infer knowledge, evidence of actual knowledge “cannot
be based on circumstances that give rise only to conjecture and suspicion.” Hinton, 402 Ill.
App. 3d at 185. Plaintiffs’ allegations of actual knowledge are conjecture based on inference
and unsupported by facts. First, plaintiffs infer that Northbrook must have known about the
impropriety of Moumen’s transfers because it was fully compliant with the BSA. They then
surmise that, because Northbrook knew of the impropriety, its actions in allowing the transfers
or ignoring policies demonstrated actual knowledge. Actual knowledge based on
circumstantial evidence must be “based on established facts and not pyramided on an
intervening inference.” (Internal quotation marks omitted.) Id. Therefore, we find plaintiffs
have not pleaded sufficient facts to show that Northbrook had actual knowledge of Moumen’s
breach of his fiduciary duty to them.
¶ 39 This determination also supports the legislative policy underlying the Act. If banks could
be held liable based on mere inference or suspicious circumstances, they would be obligated
to inquire into a fiduciary’s transactions to ensure nothing was amiss. Requiring banks to
-8-
investigate every such transaction would run afoul of the Act’s purpose, which is “to facilitate
banking and financial transactions.” Johnson, 30 Ill. App. 3d at 1072. To further that purpose,
the Act places “the burden of employing honest fiduciaries” on the principal. Id.¶ 40 Although we have determined that plaintiffs have not sufficiently pleaded actual
knowledge, Northbrook may still be liable if it had knowledge of sufficient facts so that its
actions in processing Moumen’s transfers amounted to bad faith. Time Savers, 371 Ill. App. 3d
at 768. Bad faith exists where the bank “suspects that the fiduciary is acting improperly and
deliberately refrains from investigating in order that [it] may avoid knowledge that the
fiduciary is acting improperly.” Edgcomb, 274 Ill. App. 3d at 436. However, pursuant to the
protections afforded by the Act, the bank has no duty to investigate transactions that are
“outwardly proper,” or not “per se alarming.” (Internal quotation marks omitted.) Mikrut, 359
Ill. App. 3d at 50.
¶ 41 Under the facts alleged in this case, the transfer of money from the funds to Moumen’s
personal bank and trading accounts was not outwardly improper. Moumen was the manager of
the funds and was expected to transfer money for investment purposes. Plaintiffs also
acknowledge that Moumen was entitled to 17.5% of the funds’ profits and 1% of the total
assets under management as fees. As a result, the fact that Moumen occasionally used the
transferred monies for personal expenditures was not per se alarming. “Mere suspicious
circumstances are not enough” to require Northbrook to investigate further, as “there are many
legitimate reasons why an agent and principal might engage in odd checking practices.”
Johnson, 30 Ill. App. 3d at 1072.
¶ 42 Moreover, plaintiffs did not allege facts showing that Northbrook deliberately refrained
from investigating Moumen’s activity so as to avoid knowledge of his misconduct. See
Edgcomb, 274 Ill. App. 3d at 436. Rather, plaintiffs acknowledged that Northbrook did inquire
into certain transfers and that Moumen responded that he was paying himself fees using his
personal account as a pass-through account. Pursuant to its policies, Northbrook also inquired
into whether Moumen had found a third-party administrator for the funds and warned that it
would terminate its relationship with him if he did not obtain one. After Northbrook was served
with a subpoena seeking records for the Northbrook fund accounts, it contacted Moumen
“within days of receiving the federal subpoena” and subsequently filed a Suspicious Activity
Report.
¶ 43 Therefore, we find that plaintiffs have not alleged sufficient facts to show Northbrook acted
in bad faith. Plaintiffs disagree with this finding, relying on Continental Casualty Co. v.
American National Bank & Trust Co. of Chicago, 385 Ill. App. 3d 687 (2008), and In re
Peregrine Financial Group Customer Litigation, No. 12 C 5546, 2014 WL 4784113 (N.D. Ill.
Sept. 25, 2014), as support that Northbrook acted in bad faith. These cases are distinguishable.
¶ 44 In Continental, Lawrence Cohn, a fiduciary of General Automation, Inc. (GAI), deposited
checks signed by GAI’s president and owner and made payable to American National Bank
(ANB). The checks were intended to pay GAI’s payroll taxes. Cohn, however, attached the
checks to a deposit ticket made out to his own personal checking account and deposited the
checks into an automated teller machine at ANB. Continental, 385 Ill. App. 3d at 688-89. This
court’s previous opinion in the case found that Cohn’s act of depositing the checks into his
personal account put ANB on notice that Cohn was acting beyond the scope of his authority,
because the checks themselves showed that they were payable to ANB. Continental Casualty
Co., 329 Ill. App. 3d at 694. In other words, Cohn’s conduct was outwardly improper. The
-9-
court also found that ANB failed to inquire into whether Cohn’s disposition of the checks was
appropriate. Id.¶ 45 Peregrine involved the improper use of a special customer segregated account. Peregrine,
2014 WL 4784113, *3. The employees at U.S. Bank, N.A., which held the account, permitted
transfers of large amounts of money from the account for Peregrine’s use. Id. Since it was not
an ordinary account, special rules were in place regarding the transfer of funds. The plaintiffs
further alleged that bank employees regularly reviewed Peregrine’s financials and knew it did
not turn a profit most years. Id. *7. As a result, they had knowledge that Peregrine did not have
enough funds to cover the transfers. Therefore, it was “unlikely” for the large number of
transfers to have occurred without knowledge of misconduct. Id. Since the bank possessed
information that should have caused it to investigate, these allegations “g[ave] rise to an
inference of bad faith.” Id.
¶ 46 Unlike Continental, where the fiduciary’s conduct in depositing corporate checks into his
personal account was per se alarming, the transfers from the fund accounts by Moumen were
not outwardly improper. The funds in Peregrine involved a special segregated account with
rules limiting transfers. Bank employees also possessed financial information that alerted them
to the wrongdoing. Although plaintiffs argue that the CRVF and CREF funds were special
funds because some deposits came from IRA accounts, not every investor deposited money
from their IRA accounts. Plaintiffs have alleged no facts showing that Northbrook considered
the funds to be special segregated accounts or that it was per se alarming that it did not do so.
Furthermore, plaintiffs alleged that the funds were not profitable but, unlike the case in
Peregrine, failed to allege how Northbrook employees would have known that fact.
¶ 47 For the reasons set forth, we find that plaintiffs have not alleged sufficient facts to support
that Northbrook acted in bad faith.
¶ 48 Plaintiffs’ final contention is that the trial court should not have dismissed their claim that
Northbrook aided and abetted Moumen’s breach of his fiduciary duty. To plead this claim,
plaintiffs must sufficiently allege that (1) Moumen performed a wrongful act causing injury,
(2) Northbrook was aware of its role in Moumen’s misconduct at the time it provided
assistance to him, and (3) Northbrook knowingly and substantially assisted Moumen in the
violation. Thornwood, Inc. v. Jenner & Block, 344 Ill. App. 3d 15, 27-28 (2003). The term
“ ‘knowingly’ implies that the act was performed consciously, intelligently, and with actual
knowledge of the facts.” People v. Edge, 406 Ill. 490, 494 (1950).
¶ 49 We have already determined that plaintiffs did not allege sufficient facts to show that, at
the time the transfers occurred, Northbrook had actual knowledge Moumen was breaching his
fiduciary duty to plaintiffs. Northbrook could not knowingly assist Moumen in his wrongdoing
if plaintiffs have not sufficiently alleged that Northbrook knew Moumen was breaching his
fiduciary duty in the first place. We therefore affirm the dismissal of this claim as well.
¶ 50 Plaintiffs argue that dismissal was improper because, at this stage, all well-pled facts must
be taken as true and they need not prove their case at the pleading stage. We agree that, in
ruling on a section 2-615 motion, the court must take all well-pled facts in the complaint as
true. DeWoskin v. Loew’s Chicago Cinema, Inc., 306 Ill. App. 3d 504, 513-14 (1999).
“However, conclusions of law or fact contained within the challenged pleading will not be
taken as true unless supported by specific factual allegations.” Id. Under Illinois’s fact-
pleading standard, plaintiffs must allege facts sufficient to bring a claim within a legally
recognized cause of action. Vernon v. Schuster, 179 Ill. 2d 338, 344 (1997). This pleading
- 10 -
requirement “is not satisfied, in the absence of the necessary allegations, by the general policy
favoring the liberal construction of pleadings.” Teter v. Clemens, 112 Ill. 2d 252, 256-57
(1986). Instead, courts must disregard conclusions of fact, unsupported by factual allegations,
when determining whether the pleadings are sufficient to state a cause of action. City of
Chicago v. Beretta U.S.A. Corp., 213 Ill. 2d 351, 368-69 (2004).
¶ 51 IV. CONCLUSION
¶ 52 For the foregoing reasons, the judgment of the circuit court is affirmed.
¶ 53 Affirmed.
- 11 -