O'Halloran v. First Union National Bank of Florida

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR TH E ELEV ENTH C IRCUIT FILED
________________________
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 02-13084 November 14, 2003
________________________ THOMAS K. KAHN
D. C. Docket No. 01-01779-CV-T-17-EAJ CLERK
KEVIN O’HA LLORAN , as Chapter 11 Trustee for
Greater Ministr ies Intern ational, In c., et al.,
WIL LIAM C. SM ITH, J OHN TING UE, in dividua ls
suing o n behalf of them selves an d all perso ns similar ly
situated,
Plaintiffs-Appellants,
versus
FIRST UNION NATIONAL BANK OF FLORIDA,
Defendant-Appellee.
_________________________
Appe al from th e United States D istrict Cou rt
for the Middle District of Florida.
_________________________
(November 14, 2003)
Before TJOFLAT, ANDERSON and CUDAHY*, Circuit Judges.
CUDA HY, Circuit Judge:
*
Honorable Richard D. Cudahy, United States Circuit Judge for the Seventh Circuit, sitting by
designation.
Throu gh the 1 980s an d 1990 s, Greate r Minis tries Intern ational, In c.,
operated out of Tampa, Florida, a vast Ponzi scheme alternatively called the
“Double-Your-Blessings” program, the “Greater Trust Gift Exchange” and the
“Faith Promise Plan,” bilking more than 15,000 investors of an estimated $500
million. Greater Ministries maintained some of the proceeds of these illegal
operations in an account with First Union National Bank of Florida. In this action,
the trustee in bankruptcy of Greater Ministries and two individual investors in the
Ponzi scheme are suing First Union for knowingly paying out funds from Greater
Ministries’ accounts to a malfeasant church official. While we agree with the
district court that the plaintiffs’ complaint fails as a matter of law, we vacate the
dismissa l and rem and the c ase, with instructio ns to allow the plaintif fs leave to
amend their com plaint.
I.
Because this case was dismissed on a Fed. R. Civ. P. 12(b)(6) motion, we
must accept the facts as alleged in the plaintiffs’ First Amended Complaint and
construe all inferences in the light most favorable to the plaintiffs. Franklin v.
Gwinnett County Pub. Schs., 911 F .2d 617 , 619 (1 1th Cir. 1 990).
2
During the 1980s and 1990s, Greater Ministries International, Inc., later
known as Greater Ministries Church, purported to operate a church in Tampa,
Florida . While G reater M inistries m ay have c onduc ted servic es and en gaged in
charitable activities, its significance was largely as a vehicle for a Ponzi scheme
run by the church’s elders. Called at various times the “D ouble-Your-B lessings”
progra m, the “G reater Tr ust Gift E xchang e” and th e “Faith P romise P lan,” this
“investm ent prog ram” lur ed pros pective in vestors w ith spectac ular retur ns. In its
initial phase, the church offered each investor a 100% return if that investor
successfully solicited two others to commit funds equal to the amount invested by
the original investor–a classic pyramid scheme. Later, investors did not even need
to do the soliciting, but needed only to wait while Greater Ministries solicited
enoug h other in vestors to produ ce the 10 0% re turn pro mised to be availab le within
seventeen months. The investment interests were labeled “gifts,” the profits called
“God’s blessings” and the reinvesting or rolling over of proceeds “regifting.” The
programs were administered by entities such as “Greater Trust” and “1 John 4:4,
Inc.,” 1 and sold through a national netw ork of “elders,” who received as m uch as a
5% co mmissio n on inv estment f unds se cured th rough their efforts. Acco rding to
the plaintiffs, Greater Ministries managed to defraud more than 15,000 victims out
1
“Little children, you are of God, and have overcome them; for he who is in you is greater than
he who is in the world.” 1 John 4:4 (Revised Standard).
3
of an estim ated total o f $500 million.
The inv estors’ fu nds w ere funn eled by G reater M inistries into a single
general fund, where they were allegedly commingled with other, non-Ponzi
revenues. From 1995 to 1998, Greater Ministries used several bank accounts, one
of the principal ones being a First Union National Bank of Florida account having
the account number 2090001418036 (the “8036 Account”). 2 It is this account
which lies at the he art of this la wsuit.
During the period that G reater Ministries maintained accounts at First
Union, the bank had actual knowledge of Greater Ministries’ illegal activities but
“utterly ignored” them in its “desire to make money for itself off the Ponzi and
money launder ing sche me mo ney flow ing thro ugh its ac counts.” First A m. Com pl.
at 14 para. 15, Record at 16. According to the plaintiffs, this knowledge came
from n umero us Tam pa Trib une article s about in vestigatio ns by va rious state s into
Greater Ministries, from knowledge of the criminal histories of various Greater
Ministries officials and from a state investigation into an attempt by Greater
Ministries-related individuals to acquire control of First Western Bank (another
Florida bank). Other clues about the illegal nature of Greater Ministries were
Florida ’s shutting down of Gre ater Ass urance T rust (G reater M inistries’ fo ray into
2
First Union completed a merger with Wachovia Corporation in September 2001.
4
the insurance business, an entity that also had an account with First Union) and
advisories issued by the Treasury Department and the Federal Deposit Insurance
Corporation regarding the illegality of an entity operated by Greater Ministries
named Greater International Bank of Nauru. Further indicators arose from contact
between First Union and various individual investors as well as from the
suspiciously large transactions involving the account. Acco rding to the plaintiffs,
several other banks had refused to continue doing business with Greater Ministries
and had told it to take its business elsewhere. In contrast, First Union knew of
Greater Ministries’ misdeeds, consulted with government officials about them and
even notified Greater Ministries that its accounts were being closed, but continued
to service the Greater Ministries accounts.
Betwe en Au gust and Nove mber 1 998, F irst Unio n allow ed Payn e to
withdraw about six million dollars from the Greater Ministries accounts. For
examp le, on A ugust 2 5, 1998 , Payne to ok deliv ery of $2 ,892,90 0 in $10 0 bills
from the 8036 Account. On September 1, Payne withdrew an additional
$1,886,250. In order to legitimize the withdrawals, First Union “induced the
Paynes” to present docum entation “as ostensible authorization” for the cash
deliveries . Id. at 29 para. 29. Much of this money was never seen again by the
investor s or by th e gover nment. I n 2001 , Payne w as senten ced to 27 years in
5
federal prison for fraud and o ther offenses. His wife wa s sentenced to 13 years.
As a result of the continuing criminal investigation of Greater Ministries and
Payne, G reater M inistries w as put into federal re ceiversh ip in Au gust 19 99.
Shortly thereafter , the feder al receiver , with au thorizatio n from the district c ourt,
initiated an involun tary bank ruptcy ca se agains t Greater Ministr ies, and K evin
O’Halloran, a plaintiff in the present action, was appointed trustee of the
bankruptcy estate. O’Halloran, on behalf of Greater Ministries, and William C.
Smith and John T ingue, two individual investors defraud ed by Greater Ministries’
Ponzi s cheme, b rough t the prese nt action. T he plaintif fs alleged four dif ferent state
law claims against First Union: aiding and abetting crimes and torts, assisting
breach o f fiduciar y duties, b reach of duties to w arn and to contro l and neg ligence.
The dis trict court g ranted th e defend ant’s Fed . R. Civ. P . 12(b)( 6) motio n to
dismiss.
First, the district court held that O’Halloran does not have standing to bring
a suit against First Union. Citing Feltman v. Prudential Bache Securities, 122 B.R.
466 (S .D. Fla. 1 990), th e court h eld that G reater M inistries w as simply a “condu it
for stolen money” with no genuine claim to the disputed funds and that any alleged
injury to Greater Ministries was illusory. Second, the court found that the claims
brought by the individual investors, who do have standing, failed as a matter of
6
law. The court reasoned that, under Florida law, First Union had no duty to the
individual investor plaintiffs; the bank’s only obligations were to Greater
Ministries, its depositor. The district court reasoned that recognizing a duty to the
individuals here would require banks to intrude significantly into the affairs of
their clients. The district judge ruled that even actual knowledge of Greater
Ministr ies’ misde eds wo uld not a ctivate a du ty by Firs t Union to the inv estors in
the absence of a fiduciary relationship.
II.
We rev iew de n ovo a F ed. R. C iv. P. 12 (b)(6) d ismissal. Long v. Satz, 181
F.3d 1275, 1278 (11th Cir. 1999). In reviewing the sufficiency of a complaint, we
accept as true the facts alleged and construe them in the light most favorable to the
plaintiffs. Franklin v. Gwinnett County Pub. Schs., 911 F.2d 617, 619 (11th Cir.
1990). A complaint should not be dismissed for failure to state a claim unless “the
plaintiff can prove no set of facts that would entitle him to relief.” Hoffman-Pugh
v. Ramsey, 312 F.3d 1222, 1225 (11th Cir. 2002).
We begin by identifying what exactly are the torts alleged here. The
plaintiffs’ principal allegations seem to deal directly with the disbursement of over
7
$6 million by First Union to Payne. This “embezzlement claim” takes a prominent
place in the complaint. Much of the rest of the complaint, however, does not deal
so much with these final withdrawals by Payne as with the underlying fraud, the
deceptiv e solicitation of inves tments en gaged in by Gre ater Min istries and Payne.
This “P onzi claim ” is argua bly conta ined w ithin the lan guage o f the com plaint.
See First A m. Com pl. at 38 p ara. 45, R ecord at 1 6 (“First U nion br eached its
obligation to disclose to the Plaintiffs . . . what it knew.”).
Lack of clarity about whether the plaintiffs were pursuing the embezzlement
claim or the Ponzi claim, or both, has apparently plagued this lawsuit from the
filing of the initial complaint. Fortunately, this question was definitively settled
during oral argu ment:
Appellants: The tru stee is not s uing to c ollect for th e Ponz i scheme damag e.
There indeed is a separate lawsuit that’s going to trial . . . for
that.
...
Appellants: We all believe that the ownership of the [Ponzi] claim against
Payne would be primarily the investors’, and they do have that
case . . . .
...
Ande rson, J.: That’s really the only claim, that six million, with respect
to whic h you re ally have a claim, is it no t?
Appellants: I agree. In this case, th at is the on ly thing w e’re look ing for.
The rest of it was window dressing.
Also during oral argum ent, counsel for the Appellants acknow ledged that it was a
8
mistake to include in the complaint so many allegations about the underlying Ponzi
scheme , and that th e investo rs were added a s parties in the prese nt case so lely in
case a question arose as to the trustee’s standing. In the word s of Appellants’
counsel, if we find the trustee to have standing, the investors “are out” of the case.
We therefore first consider whether O’Halloran has standing to pursue the
embezzlement claim against First Union. Then, we consider whether the complaint
validly states a claim upon which relief can be granted.
A.
“The question of standing involves both constitutional limitations on
federal-court jurisdiction and prudential limitations on its exercise. To satisfy the
‘case or co ntrover sy’ requir ement o f Article I II, whic h is the irre ducible
constitutional minimum of standing, a plaintiff must, generally speaking,
demonstrate that he has suffered ‘injury in fact,’ that the injury is ‘fairly traceable’
to the actions of the defendant, and that the injury will likely be redressed by a
favorable decision.” Bennett v. Spear, 520 U.S. 154, 162 (1997) (internal
quotation marks and citations omitted). A bankruptcy trustee stands in the shoes of
the debtor and has standing to bring any suit that the debtor could have instituted
had it not been thrown into bankruptcy. 11 U.S.C. §§ 541-42.
9
First Union won dismissal of O’Halloran’s claims on the ground that
O’Halloran, as trustee of Greater M inistries, did not have standing to sue First
Union on any of the stated causes of action.3 First Union continues to argue that
O’Halloran cannot recover because any financial detriment that Greater Ministries
might have suffered because of the bank’s actions would have involved funds that
Greater Ministries had acquired through fraud. The bank appears to be invoking
the doctrine of in pari delicto. Def.’s Memo. of Law in Supp. of Mot. to Dismiss at
5, Record at 20 (arguing that the trustee “should not now be permitted to sue third
parties to seek redress for the consequences of the bankrupt’s own pervasive
wrongdoing”).
We begin by noting our agreement with the trustee that he is not the right
party to p ursue an y damag es resultin g from the Pon zi schem e itself. Ev en if
phrases such as “sham corporation” or “alter ego” were never used in the
complaint to describe Greater Ministries, the complaint does pervasively describe
Greater Ministries as an organization run by Payne for the sole purpose of
3
It is an open question in this Circuit whether a bankruptcy trustee may under some
circumstances assert creditors’ claims in addition to claims of the estate. Previously, we have
held, in a decision expressly limited to the specific facts of that case, that a trustee could not
bring such claims. See E.F. Hutton & Co. v. Hadley, 901 F.2d 979, 985-87 (11th Cir. 1990). We
do not elaborate on the E.F. Hutton holding today because the trustee limits his argument to
those claims derived directly from the debtor, Greater Ministries. See Pls.’ Response to Def.’s
Mot. to Dismiss at 12, Record at 24 (specifying that the investors are asserting the investors’
claims and the trustee is asserting the claims of the bankruptcy estate).
10
perpetra ting his P onzi sch eme. E.g., First Am. Compl. at 1, Record at 16 (alleging
that “principals of a so-called ‘church’ . . . operat[ed] a Ponzi scheme under a cloak
of religio n”); id. at 12 para. 11 (noting that the board of Greater Ministries was
“under th e ultimate c ontrol o f Gerald Payne” ); id. at 13 para. 13 (Greater
Ministries was formed “for the purported purpose of providing a vehicle for the
operatio n of a C hristian ch urch.” (e mphas is added )); id. at 21 para. 20 (using
quotation marks around “church” and “church members” and noting that “there
was no organiz ed chur ch cong regation in any rec ognizab le sense”) ; id. at 31 para.
33 (describing the investors as “victims of the Payne/[G reater Ministries]
schemes”). Given these allegations, there is little doubt that the complaint alleges
Greater Ministries to be one of the princ ipal culprits in the Ponzi scheme. Thus,
neither Greater Ministries nor its bankruptcy trustee can sue anyone, including the
defendant, for the Ponzi scheme torts. Greater Ministries, whose primary existence
was as a perpetrator of the Ponzi scheme, cannot be said to have suffered injury
from the scheme it perpetrated.4 The trustee is correct in not pursuing such a
4
We have previously found that a trustee has standing to sue on behalf of a corporation even
when the debtor entity was the wrongdoer. See, e.g., Miller v. San Sebastian Gold Mines, 540
F.2d 807 (5th Cir. 1976); Bailes v. Colonial Press, Inc., 444 F.2d 1241 (5th Cir. 1971). These
cases, however, have been limited to circumstances when the deception of earlier shareholders
negatively impacted subsequent, unknowing and legitimate shareholders. In Bailes, for example,
we found that a trustee had standing to sue because the corporation had assumed liabilities that,
but for the tortious directors’ misrepresentations of the corporations’ liabilities and assets, it
would not have assumed. 444 F.2d at 1245-46. The instant complaint alleges that every one of
Greater Ministries elders was involved in the Ponzi scheme. There are no subsequent investors
11
fruitless claim.
The P onzi sch eme, ho wever , is not the to rt with w hich w e are con cerned.
The co mplaint a lleges that F irst Unio n acted w rongly w hen it per mitted P ayne to
remov e funds from th e accoun ts Greate r Minis tries main tained at F irst Unio n.
E.g., id. at 34 par a. 37 (“B y its actions First U nion . . . aid ed and a betted G erald
Payne . . . in wrongfully taking . . . the funds carried in accounts of Greater
Ministr ies. . . . In add ition . . . , Firs t Union breache d its oblig ation to d isclose to
the Plaintiffs . . . what it was doing with Payne and what First Union knew and had
learned.” ); id. at 38 para. 45 (First Unio n “had a duty to warn [G reater Ministries] .
. . of Paynes’ money transferring and money-taking activities.”). As we noted
above, this is the claim that is at issue here.
The district court apparently ruled that the trustee had no standing to pursue
the embezzlement claim. We disagree. The district court relied in part on the
potential c onflict be tween a bankru ptcy truste e and the creditors of the ba nkrup t.
District Ct. Order at 8 (quoting Feltman, 122 B.R. at 473-75, and noting that
with an ownership stake on whose behalf the trustee could sue. See Miller, 540 F.2d at 809(“[W]ere only the founding investors involved, the district court decision [that the trustee did not
have standing] would be correct.”). Moreover, the trustees in Bailes and Miller were not granted
standing to sue third parties but to sue the directors themselves on behalf of the duped,
subsequent shareholders. Bailes, 444 F.2d at 1244 (holding that the corporation had standing to
bring claim on behalf of the corporation against the promoters of the deception); Miller, 540
F.2d at 809 (same). In the present suit, the trustee seeks to sue First Union, not the perpetrators
of the scheme. Neither Greater Ministries not its estate has standing to bring a suit based on the
Ponzi claim.
12
allowing the trustee to sue on behalf of the debtor would deprive the creditors of
standing to raise the same claim s). Wh ere, as her e, the truste e is litigating in
concert with investors, and the trustee may be able to assert injuries not duplicative
of those suffered by the inv estor plain tiffs, we f ind the co ncern th at the truste e is
someh ow dis placing th e rights o f the inve stors to b e misplac ed. See also Scholes v.
Lehmann, 56 F.3d 750, 755 (7th Cir. 1995) (“[I]f in place of the receiver’s actions
the investors had brought a class action against the present defendants . . . , the
defendants would no doubt be arguing that the action was improper because the
injury was to the corporations and only derivatively to investors in the
corporations.”). We also find perhaps less significant than did the district court the
fact that the funds which the trustee claims to be tortiously deprived of were
substantially the fruit of fraud. For example, if, say, some burglar purloined
money from a s afe belon ging to G reater M inistries, G reater M inistries or its
bankruptcy trustee could pursue a claim against the burglar regardless of whether
Greater Ministries had obtained the money by fraud. Greater Ministries was
responsible, according to the complaint, for the Ponzi scheme, but as the holder of
voidable title to the fu nds (as opp osed to void title) was legally injured by Payne’s
withdrawals from the F irst Union accounts. 5 See B.R.L. Equip. Rentals, Ltd. v.
5
Nor can Payne’s embezzlement be imputed to Greater Ministries. See Seidman & Seidman v.
Gee, 625 So. 2d 1, 2-3 (Fla. Dist. Ct. App. 1992) (noting that the wrongs of an individual “acting
13
Seabring Marine Indus., Inc., 168 F.3d 413, 415-16 (11th Cir. 1999) (noting that
“the possessor of property obtained via a worthless check has ‘voidable’ title to the
property–the possessor has title, but the seller can avoid that title as against the
buyer u pon dis covery o f the frau d”); Mazzoni Farms, Inc. v. E. I. DuPont de
Nemours & Co., 761 So. 2d 306, 313 (Fla. 2000) (“[F]raudulent inducement
renders a contract voidable, not void.”). Greater Ministries’ ownership of the Ponzi
funds can be legally asserted against parties other than the investors themselves.
We agree with the trustee that this case can be distinguished from Feltman,
122 B .R. 466 . Althou gh, as w e noted e arlier, the co mplaint’s allegation s clearly
reveal G reater M inistries to b e a prima ry culprit in the Pon zi schem e such th at it
does not have standing to sue for any injuries resulting from that scheme, the
complaint does not suggest that there was an absolute identity of interests between
Payne and Greater Ministries. If, indeed, Greater Ministries were merely the alter
ego of Payne, we might agree with the district court that there was also no standing
for the em bezzlem ent coun t–Payn e could n ot embe zzle fund s from h imself. See id.
at 469 (noting that all the officers and directors, except one, of the plaintiff
corporation were mem bers of the embezzler’s family). But Greater M inistries was,
adversely to the corporation” are not imputed to the corporation). Since the trustee is alleging a
wrong by Payne and First Union committed against Greater Ministries, the doctrine of in pari
delicto is inapplicable.
14
if a criminal organization, also one with a significant membership and governing
body. Reading the complaint in the light most favorable to the trustee, we cannot
conclude that Greater Ministries was merely Payne’s alter ego. As long as Greater
Ministr ies was n ot merely Payne’s alter ego, it is conceivable that P ayne cou ld
have wrongfully embezzled money from the organization. The alleged injury
resulting from Payne’s embezzlement of the First Union funds gives Greater
Ministr ies standin g to pur sue a claim against F irst Unio n for its in volvem ent in
Payne’s withdrawals. See also In re H uff, 109 B.R. 506, 512 (Bankr. S.D. Fla.
1989) (“First, there is no question that [the corporation] alleges it suffered a loss of
$800,000 at the hands of the Defendants when they took from the corporation sums
totalling th at much for them selves an d their fam ily memb ers. This alone is
sufficient to sustain standing.”).
B.
What w e are less ce rtain of, h owev er, is wh ether the c omplain t states a claim
upon which relief can be granted. In essence, the trustee’s argument appears to be
that First Union knew Payne to have a criminal history and knew the suspect nature
of Greater Ministries’ dealings, yet allowed Payne to withdraw large sums of
money, in cash, from accounts that were not his personal accounts. More
15
specifically, the complaint alleges that6 1) First Union “joined the conspiracies and
wrongdoing of [Payne] . . . in wrongfully taking and misappropriating and
converting the funds carried in [the General Ministries accounts]” and “breached
its obligatio n to disclo se to [G reater M inistries] w hat it was doing w ith Payn e . . .
and what First Union knew and had learned,” 2) First Union “knowingly and/or
recklessly aided and abetted [Payne] in breaching h is fiduciary duties,” 3) First
Union breached a duty to warn Greater Ministries about Payne’s actions and
control th e funds in the G reater M inistries acc ounts an d 4) Fir st Unio n volun tarily
incurred and then negligently breached duties of care to Greater Ministries. 7
Record at 16.
As is obvious, a corporate entity cannot deal with banks directly–it relies on
officers and employees, who are responsible for performing their duties in the
6
The complaint’s allegations pervasively include references to the Ponzi scheme and damage to
Greater Ministries’ investors. Since this lawsuit, according to the Appellants, only involves the
embezzlement claim, we ignore such “window dressing” and focus on the relationship between
First Union and Greater Ministries.
7
At first reading, the four counts noted above appear almost identical. All four theories of
recovery are based on the same set of events and involve the same damages. Teasing them apart,
we draw the following distinctions in the trustee’s theories. Count Two, to a large extent, is a
restatement of Count One, except that it alleges the commission of a particular tort–breach of
fiduciary duties–rather than “crimes and torts” generally. Count Three invokes more directly a
duty on the part of First Union to notify Greater Ministries than do Counts One and Two, and
also specifies that First Union should have taken active steps to prevent Payne’s withdrawals.
Count Four rests on a theory that, whatever duties First Union owed to Greater Ministries prior
to 1998, it voluntarily undertook additional duties late in that year by helping Payne legitimize
his withdrawals. We do not find that these distinctions, however, merit individualized
discussion, since our holding applies equally to each count.
16
interests of the company. Conversely, a bank can only really complete transactions
with natural persons and has the right to assume that individuals who have the
legal authority to handle the entity’s accounts do not misuse the entity’s funds. For
example, if an employee is sent to the bank to make a withdrawal from the
company’s account and to bring the funds back to the corporate office, but instead
the emp loyee take s the mo ney and flees to P araguay , the bank is not resp onsible
for the employee’s actions. The bank is responsible only for making sure that the
employee, at the time of the withdrawal, has the authority to make withdrawals on
behalf of the accountholder entity. A bank’s responsibility to a depositor may be
somewhat heightened when the bank has knowledge that a particular individual
ostensibly representing the depositor instead intends to cause financial injury to the
depositor. Under such circumstances, the bank may be responsible for taking
additional steps to ensure that the representative has complete authorization from
the depositor. Nonetheless, a refusal on the part of the bank to permit a withdrawal
by a duly authorized representative of a corporate accountholder would no doubt
breach the bank’s deposit agreement with that accountholder.
In his complaint, the trustee alleged that Greater Ministries and its board
were “under the ultimate control of Gerald Payne.” First Am. Compl. at 12 para.
11, Rec ord at 16 . Payne w as one o f three co -found ers of the church , id. at 2 para.
17
2, and “the principal person with whom First Union dealt,” id. at 18 par a. 15.
“First Union dealt directly and frequently with [Payne] for several years.” Id. at 2
para. 2. The complaint also states that Payne was “operating under the name of
Greater Ministries,” id. at 15 par a. 15(c), d escribes G reater M inistries as “h is
enterprise,” id. at 21 para. 20, and refers to Greater Ministries’ First Union bank
accounts as “his banking business,” id. at 22 para. 21. The complaint also alleges
that First Union sought from Payne evidence of authorization fo r the cash
deliveries . Id. at 29 para. 29. According to the trustee, these documents included a
plan of transfer of assets, board resolutions, affidavits from Payne and new
signatur e cards. A ppellants ’ Open ing Br. a t 15.
Earlier, we concluded that the com plaint, construed in the light most
favorable to th e trustee, does no t allege Greater M inistries to have be en Payne’s
alter ego. Here, however, we find that the complaint, even construed in the light
most favorable to the trustee, clearly alleges that Payne was, for purposes of
Greater Ministries’ banking transactions with First Union, fully authorized by
Greater Ministries to act on its behalf, and we ag ree with First Union that these
allegation s foreclo se the po ssibility of th e trustee’s p revailing on any o f his
theories. E ven if, as th e comp laint alleges , First U nion ha d cause to be particu larly
cautious in the handling of Greater Ministries’ accounts, the instant complaint
18
alleges that the bank met this higher standard of diligence. If indeed Payne had
complete and legal authorization from Greater Ministries, as alleged by the
complaint, First Union is not responsible for Payne’s diverting the funds to his own
purposes. Such allegations foreclose the possibility that First Union was
respon sible to G reater M inistries fo r Payne ’s withd rawals, a nd dism issal of this
claim w as appro priate. See Pettigrew v. Citizens Trust Bank, 229 B.R. 39 (N.D.
Ga. 1998) (finding a bank not liable where the bank’s sole contacts with the
accountholder entity were the embezzlers themselves).
III.
For the foregoing reasons, we agree with the defendant that the trustee has
not stated a claim upon which relief can be granted. This, however, is not the end
of the case. Because the Notice of Appeal on this case was filed before Dec. 10,
2002, it is governed by Bank v . Pitt, 928 F .2d 110 8 (11th Cir. 199 1), overruled by
Wagner v. Da ewoo Heavy In dus. Am. Corp ., 314 F.3d 541 (11th Cir. 2002) (en
banc). Under Pitt, district courts are required to give plaintiffs at least one
oppor tunity to am end a co mplaint b efore the district cou rt dismiss es an actio n with
prejudic e. Pitt, 928 F.2d at 1112. Although such leave need not be granted where
19
amendment would be futile, and we think that the issue of futility here is close, the
principles delineated in Pitt counsel us to err on the side of generosity to the
trustee. B ecause a m ore caref ully drafte d comp laint could conceiv ably state a v alid
claim, we VACATE the dismissal and REMAND , with instructions to allow the
trustee leav e to amen d his com plaint.
20