Amir Isiah v. JPMorgan Chase Bank, N.A.

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
______________________
No. 17-15585
______________________
D.C. Docket No. 1:16-cv-21771-JEM
AMIR ISAIAH,
as court-appointed Receiver of Coravca
Distributions, LLC; Timeline Trading
Corp.; Edgewater Technologies, CA,
Corp.; and Edgewater Technologies, S.A.
Plaintiff – Appellant,
versus
JPMORGAN CHASE BANK, N.A.,
Defendant – Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(June 1, 2020)
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Before ROSENBAUM and TJOFLAT, Circuit Judges, and PAULEY,∗ District
Judge.
TJOFLAT, Circuit Judge:
This appeal arises out of a Ponzi scheme executed by the principals of two
entities, Coravca Distributions, LLC and Timeline Trading Corp. (the
“Receivership Entities”). Amir Isaiah, the court-appointed receiver for the
Receivership Entities, sued JPMorgan Chase Bank, N.A. (“JPMC”), seeking to
recover funds that were fraudulently diverted from the Receivership Entities’ bank
accounts in connection with that Ponzi scheme. His complaint sought to avoid the
fraudulent transfers and recover the diverted funds on behalf of the Receivership
Entities under the Florida Uniform Fraudulent Transfer Act (“FUFTA”), and to
collect damages from JPMC for JPMC’s alleged aiding and abetting of three torts:
breach of fiduciary duty, conversion, and fraud. Isaiah claimed that JPMC helped
facilitate the Ponzi scheme by transferring funds into, out of, and among the
Receivership Entities’ bank accounts, despite its alleged awareness of suspicious
banking activity on those accounts. The District Court dismissed the complaint
under Federal Rule of Civil Procedure 12(b)(6), holding that Isaiah failed to allege
an applicable conveyance or fraudulent transfer for purposes of his FUFTA claim,
and failed to sufficiently allege that JPMC had actual knowledge of the underlying
∗Honorable William H. Pauley, III, Senior United States District Judge, Southern District
of New York, sitting by designation.
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Ponzi scheme for purposes of his aiding and abetting claims. After careful review,
and with the benefit of oral argument, we affirm.
I.
Because this case was dismissed on a Rule 12(b)(6) motion to dismiss, we
restate the following facts as alleged by Isaiah in his complaint. A Florida state
court appointed Isaiah receiver of the Receivership Entities in September 2010,
after finding that the principals of the Receivership Entities, Rosa Aguirre (a/k/a
Rosa Villarroel) and Diego Corado (the “Ponzi schemers”), had been using the
Entities to perpetrate a Ponzi scheme against investors. In this classic Ponzi
scheme, the Ponzi schemers solicited investors by promising astronomical returns
on investments supposedly involving the trade of Venezuelan and U.S. currency.
As proof that the investments were generating returns, the Ponzi schemers would
send “distributions” to the investors through the Receivership Entities. In reality,
the “distributions” consisted merely of money invested by other duped investors
instead of actual gains on legitimate investments. Through this charade, the Ponzi
schemers ultimately defrauded more than 2,000 investors and pilfered millions of
dollars from the Receivership Entities.
The Ponzi schemers operated this fraudulent scheme, in part, by depositing
investments into and making “distributions” from several JPMC bank accounts
belonging to the Receivership Entities. Until early 2010, the Receivership Entities
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had only one corporate account at JPMC, and for the first twenty-eight months of
their banking relationship with JPMC, the account activity was fairly normal. But
in January 2010 the total amount of monthly deposits and withdrawals
skyrocketed, and in February the Receivership Entities opened a second bank
account at JPMC. The Receivership Entities continued to make substantial
deposits into and withdrawals from these accounts in rapid succession and
corresponding amounts until, in May 2010, JPMC’s internal anti-money laundering
section detected suspicious activity on the accounts and unilaterally closed both
bank accounts. Almost immediately after JPMC detected fraud on the two
accounts—indeed, less than a day after closing each account—JPMC allowed the
Receivership Entities to open two new JPMC bank accounts. This, the complaint
alleges, allowed the Ponzi schemers to “wind down their affairs” and transfer the
funds from the Receivership Entities’ JPMC accounts to new bank accounts at
Bank of America and Wachovia Bank, where the Ponzi schemers continued their
fraudulent scheme over the next several months.
Isaiah, now the court-appointed receiver of the Receivership Entities, filed
this suit against JPMC in state court based on JPMC’s handling of the Receivership
Entities’ accounts. He sought (1) avoidance and recovery of certain fraudulent
transfers allegedly made to JPMC under the FUFTA, Fla Stat. § 726.105(1)(a), and
(2) damages for JPMC’s aiding and abetting the Ponzi schemers’ breach of their
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fiduciary duties, conversion of the Receivership Entities’ funds, and fraud.
Specifically, the complaint seeks to recover from JPMC, on behalf of the
Receivership Entities, funds that were fraudulently deposited into, withdrawn
from, and transferred among the Receivership Entities’ bank accounts because
JPMC was an “actual recipient[] of the transfers and [a] bad faith commercial
conduit[]” that “acted in bad faith in processing bank transactions for and/or on
behalf of the Receivership Entities.” Compl. ¶ 51. As to the aiding and abetting
claims, the complaint alleges that JPMC failed to follow sound banking practices
and willfully ignored suspicious banking activity, and thus knowingly encouraged
the Ponzi schemers’ tortious conduct by providing a platform for them to carry out
their illicit scheme.
JPMC removed the state-court complaint to federal court pursuant to 28
U.S.C. § 1441, and the District Court properly exercised diversity jurisdiction
under 28 U.S.C. § 1332. JPMC then filed a motion to dismiss the complaint in its
entirety under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which the
District Court granted. 1 The District Court reasoned that Isaiah’s complaint failed
to allege an applicable conveyance or fraudulent transfer for purposes of FUFTA
liability because it alleged nothing more than routine banking activity by JPMC;
1
The District Court also granted JPMC’s motion to stay discovery pending resolution of
the motion to dismiss.
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the Ponzi schemers never departed with the assets in the bank accounts, but merely
transferred the funds between themselves. Isaiah v. JPMorgan Chase Bank, N.A.,
No. 16-CIV-21771-MARTINEZ, 2017 WL 5514370, at *2 (S.D. Fla. Nov. 15,
2017). The District Court also held that the complaint failed to adequately allege
that JPMC had actual knowledge of the underlying tortious conduct—the Ponzi
scheme—as required for aiding and abetting liability. Id. at *4. This appeal
followed. We review the District Court’s ruling on JPMC’s motion to dismiss de
novo, accepting the above allegations as true and construing them in the light most
favorable to Isaiah. See Lamm v. State St. Bank & Tr., 749 F.3d 938, 942 (11th
Cir. 2014).
II.
The FUFTA provides generally that a creditor may avoid a debtor’s
fraudulent transfer to the extent necessary to satisfy the creditor’s claim. Fla. Stat.
§ 726.108(1)(a). Under the FUFTA, “[a] transfer made . . . by a debtor is
fraudulent as to a creditor . . . if the debtor made the transfer . . . [w]ith actual
intent to hinder, delay, or defraud any creditor of the debtor.” Id. § 726.105(1)(a).
To prevail on a fraudulent transfer claim, a creditor must demonstrate (1) there was
a creditor to be defrauded, (2) a debtor intending fraud, and (3) a conveyance—i.e.,
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a “transfer”—of property which could have been applicable to the payment of the
debt due. Wiand v. Lee, 753 F.3d 1194, 1199–1200 (11th Cir. 2014).2
The FUFTA defines a “transfer” as “every mode, direct or indirect, absolute
or conditional, voluntary or involuntary, of disposing of or parting with an asset or
an interest in an asset.” Fla. Stat. § 726.102(14). While the definition of transfer is
broad, the statute plainly requires a plaintiff to show that the debtor either disposed
of his asset or relinquished some interest in that asset. Nationsbank, N.A. v.
Coastal Utilities, Inc., 814 So. 2d 1227, 1230 (Fla. Dist. Ct. App. 2002). As long
as the debtor relinquishes some interest in or control over the asset a FUFTA
transfer has occurred, even if he remains the technical owner of the asset. In re
Levine, 134 F.3d 1046, 1050 (11th Cir. 1998). Accordingly, in Levine we held that
the debtor’s purchase of an annuity constituted a FUFTA transfer because, by
purchasing an annuity, the debtor limited his ability to withdraw his money to the
terms of the annuity contract, thereby relinquishing some interest in that money.
Id. at 1049–50. The debtor no longer retained total control over or unfettered
access to the full amount of his “property.” Id. at 1050.
Isaiah’s complaint identifies three types of banking transactions that he
alleges constitute fraudulent transfers under the FUFTA: deposits into the
2
Isaiah, as receiver of the Receivership Entities, has standing to pursue this clawback
action on behalf of the Receivership Entities under the FUFTA. See id. at 1203; see also infra
pp. 16–17.
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Receivership Entities’ JPMC bank accounts, withdrawals from the Receivership
Entities’ JPMC bank accounts, and so-called “Intercompany Transfers” among
those JPMC bank accounts. Isaiah’s primary argument on appeal is that when the
Ponzi schemers deposited money into the Receivership Entities’ bank accounts,
they “transferred” that money to JPMC within the meaning of the FUFTA. He
argues that when an accountholder deposits money into his bank account, the bank
takes title to the money and then owes a debt to the accountholder, creating a
debtor-creditor relationship between the accountholder and the bank. Thus, a
deposit represents the accountholder’s conditional parting with his property,
subject to his right to later withdraw the deposited funds.
We disagree that a routine bank deposit constitutes a transfer to the bank
within the meaning of the FUFTA. To be sure, when an accountholder deposits
money into his bank account, the bank takes title to the money and has certain
legal rights to put the deposited funds to its own use. See, e.g., In re Custom
Contractors, LLC, 745 F.3d 1342, 1350 (11th Cir. 2014). For example, banks
regularly use deposited funds by distributing them to others in the form of loans.
See id. But the bank’s right to use those funds is subject always to its obligation to
the accountholder to return the funds upon request. Id.In Levine, we made clear that in determining whether a FUFTA transfer
occurred, the relevant inquiry is not one of ownership or title but of control. 134
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F.3d at 1050. While an accountholder may transfer title of funds to the bank when
he makes a routine deposit into his bank account, the accountholder can still call
upon the bank to return those funds on demand, simply by initiating a withdrawal
from his account. The accountholder thus never relinquishes his interest in or
control over the funds deposited into his bank account; rather he “retain[s] total
control over” and has “unfettered access to” the full amount of his money in his
account and can withdraw those funds at will. See id.
As the complaint makes clear, the Ponzi schemers retained full access to and
control over the funds in the Receivership Entities’ JPMC bank accounts: they
withdrew funds, wrote countless checks, made several purchases, and initiated wire
and other transfers at will. They did not “dispos[e] of or part[] with an asset or an
interest in an asset” when they deposited money into the Receivership Entities’
own bank accounts. See Fla. Stat. § 726.102(14). Thus, they did not transfer that
money to JPMC within the meaning of the FUFTA. Accord In re Whitley, 848
F.3d 205, 208–10 (4th Cir. 2017) (holding that regular deposits into a customer’s
unrestricted bank account did not constitute transfers to the bank under § 101(54)
of the Bankruptcy Code, which defines a “transfer” in substantially similar terms
as the FUFTA). 3 Isaiah’s allegations regarding routine deposits into the
3
This is not to say that banks may never be held liable as the recipient of a fraudulent
transfer under the FUFTA. In the analogous bankruptcy context, we have acknowledged that a
bank can be held liable as the recipient, or “initial transferee,” of a fraudulent transfer under the
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Receivership Entities’ own bank accounts are thus insufficient to state a FUFTA
claim against JPMC.
As a fallback, Isaiah argues that the complaint adequately alleges that the
Ponzi schemers relinquished dominion and control over the funds in the
Receivership Entities’ bank accounts when they withdrew money from those
accounts and transferred those funds to third-party accounts at JPMC. But we can
find no such allegation in Isaiah’s complaint. The complaint alleges generally that
the Ponzi schemers withdrew money and made other wire transfers, and that the
Ponzi schemers made payments to certain unidentified “Group Leaders” who
contributed to the scheme. Compl. ¶¶ 21–26, 38. But it contains no allegation that
those Group Leaders—or any other third party, for that matter—deposited funds
received from the Receivership Entities into bank accounts at JPMC. And the
nearly 100 pages of exhibits appended to the complaint—spreadsheets detailing the
activity on the Receivership Entities’ JPMC bank accounts—show only the
Bankruptcy Code—which provides for the avoidance of fraudulent transfers in substantially
similar terms as the FUFTA—if it received the funds as payment of an existing debt, such as a
mortgage payment, or as compensation for services rendered. See Custom Contractors, 745 F.3d
at 1350 (explaining that, when the transferor transfers money to the bank in payment of a debt,
he retains no rights to the funds and the bank receives the money with “no strings attached”); In
re Pony Express Delivery Servs., Inc., 440 F.3d 1296, 1301 (11th Cir. 2006) (explaining that
while banks do not ordinarily exercise legal control over funds deposited in their clients’ bank
accounts, when a bank receives assets from a debtor as payment of a genuine debt, those assets
“immediately become [the bank’s] own assets and are not simply held for its client’s purposes”);
In re Chase & Sanborn Corp., 904 F.2d 588, 599–600 (11th Cir. 1990) (finding a bank to be the
initial transferee of a fraudulent transfer where the funds were transferred to the bank to pay off
part of a loan).
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movement of money into, out of, and among the Receivership Entities’ own bank
accounts. Put simply, there is no allegation that money was transferred from the
Receivership Entities’ bank accounts into any other JPMC accounts except their
own.4 Because Isaiah’s FUFTA claims against JPMC are based only on the
Receivership Entities’ movement of funds into and among their own bank
accounts, the District Court correctly determined that the complaint failed to allege
a fraudulent transfer to JPMC within the meaning of the FUFTA.5
Finally, Isaiah argues that the District Court erred by applying a bright-line
rule that a defendant can avoid FUFTA liability solely by showing that it lacked
control over the funds at issue, and without any consideration of the defendant’s
good faith. In so arguing, Isaiah apparently construes the District Court’s opinion
as holding that JPMC was entitled to avail itself of the “mere conduit” affirmative
defense. The mere conduit defense allows defendants to avoid liability as the
recipient of a fraudulent transfer if they can show “(1) that they did not have
4
Even if the complaint could be construed to contain such an allegation, we doubt that
the mere movement of money into a third party’s bank account at JPMC, without more, see
supra note 3, would be enough to establish FUFTA liability against JPMC as opposed to the
third party accountholder. As explained above, the routine deposit of money into an unrestricted
bank account does not constitute a transfer to the bank within the meaning of the FUFTA. So,
any transfer that the Receivership Entities made to a third-party bank account at JPMC would
likely constitute a transfer to the third party that owns the account, not to JPMC.
5
Put differently, because the Receivership Entities at all times retained access to and
control over the funds in their own bank accounts, the Entities have not suffered any loss to be
recouped in a clawback action under the FUFTA.
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control over the assets received, i.e., that they merely served as a conduit for the
assets that were under the actual control of the debtor-transferor and (2) that they
acted in good faith and as an innocent participant in the fraudulent transfer.” In re
Harwell, 628 F.3d 1312, 1323 (11th Cir. 2010) (emphasis in original). To be clear,
the District Court did not apply the mere conduit defense in dismissing Isaiah’s
FUFTA claim, and neither do we. Rather, the District Court did not need to reach
that question because it held, as we do here, that Isaiah failed to allege any
applicable FUFTA transfer and so, as a threshold matter, failed to even state a
FUFTA claim. To illustrate why we have no need to reach the issue that Isaiah
prompts us to address, we pause here to briefly explain the differences between our
holding and the application of the mere conduit defense. Though the inquiries may
be semantically similar, they are conceptually distinct.
First, the mere conduit defense is an affirmative defense that must be proved
by the defendant seeking its protection. A complaint need not anticipate and
negate affirmative defenses and should not ordinarily be dismissed based on an
affirmative defense unless the defense is apparent on the face of the complaint.
Bingham v. Thomas, 654 F.3d 1171, 1175 (11th Cir. 2011) (citing Jones v. Bock,
549 U.S. 199, 215, 127 S. Ct. 910, 921 (2007)).
Second, although the mere conduit defense, like the question whether a
FUFTA transfer has occurred, requires us to ask whether a particular party had
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legal control over the assets allegedly transferred, the two concepts involve slightly
different inquiries. To establish that a FUFTA transfer occurred, a plaintiff must
show that the debtor relinquished control over the property such that he can be said
to have disposed of or parted with an interest in it. See Fla. Stat. § 726.102(14).
For a defendant to avail itself of the mere conduit defense, it must show that it did
not gain sufficient legal control over the property disposed of by the debtor such
that it should be held liable as a recipient of that fraudulently transferred property.
See, e.g., Harwell, 628 F.3d at 1323. In other words, the mere conduit defense
presupposes that a transfer has occurred—that the debtor has disposed of or parted
with an interest in some asset—and asks whether the defendant was the true
recipient of the transferred asset.
Third, and perhaps most importantly, the mere conduit affirmative defense is
a judicially created exception grounded in the equitable powers of the bankruptcy
courts. Id. at 1322. It arose not under FUFTA, but in the context of an analogous
fraudulent transfer provision in the Bankruptcy Code, which allows a bankruptcy
trustee to avoid certain fraudulent transfers similar to those avoidable under the
FUFTA and to recover the value of the transfers from the “initial transferee of such
transfer.” See 11 U.S.C. §§ 548(a)(1), 550(a)(1). Recognizing the inequity that
would result if the court adopted a literal interpretation of the term “initial
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transferee,”6 we crafted this equitable exception to exclude mere conduits or
intermediaries who might otherwise be deemed “initial transferees” from being
held liable for funds they never actually controlled or benefitted from. Custom
Contractors, 745 F.3d at 1349, 1352; Harwell, 628 F.3d at 1322.
Neither this Circuit nor the Florida courts have decided whether this
equitable defense should also apply in statutory actions under FUFTA, and for the
reasons set forth above we need not decide that question either. Nor must we
decide whether JPMC would be entitled to the mere conduit affirmative defense if
it did apply. Because Isaiah’s complaint fails to allege an applicable FUFTA
transfer, his complaint fails, as an initial matter, to state a claim of FUFTA
liability. The District Court therefore did not err in dismissing his complaint under
Rule 12(b)(6) on that basis.
III.
The District Court also dismissed Isaiah’s aiding and abetting claims against
JPMC because it found that the complaint did not adequately allege that JPMC had
actual knowledge of the underlying Ponzi scheme to support his claims that JPMC
aided and abetted the Ponzi schemers’ torts. Isaiah, 2017 WL 5514370, at *4. At
oral argument, we raised the additional concern that because Isaiah, as receiver of
6
The Bankruptcy Code does not define the term “transferee” and there is no legislative
history on the term. Harwell, 628 F.3d at 1317 (citing Bonded Fin. Servs., Inc. v. European Am.
Bank, 838 F.2d 890, 893 (7th Cir. 1988)).
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the Receivership Entities, stands in the shoes of those Entities, and because the
Entities are in turn tarred by the fraudulent acts of the Ponzi schemers, Isaiah could
not bring tort claims against JPMC for aiding and abetting the Receivership
Entities’ own torts. We asked the parties to file supplemental letter briefs
addressing whether the fraudulent acts of the Receivership Entities, as the
principals of the Ponzi scheme, are imputed to Isaiah for purposes of his tort claims
under Florida law. We find that they are, and thus that Isaiah lacks standing to
bring these aiding and abetting claims against JPMC. 7
It is axiomatic that a receiver obtains only the rights of action and remedies
that were possessed by the person or corporation in receivership. Freeman v. Dean
Witter Reynolds, Inc., 865 So. 2d 543, 550 (Fla. Dist. Ct. App. 2003). Although a
receivership is typically created to protect the rights of creditors, the receiver is not
the class representative for creditors and cannot pursue claims owned directly by
the creditors. Id. Rather, he is limited to bringing only those actions previously
owned by the party in receivership. Id. For purposes of this appeal, then, we must
determine whether the Receivership Entities would have had a claim against JPMC
for aiding and abetting the Ponzi scheme executed through the Receivership
7
“We can affirm on any basis supported by the record, regardless of whether the district
court decided the case on that basis.” Martin v. United States, 949 F.3d 662, 667 (11th Cir.
2020).
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Entities. That question in turn depends on whether the Ponzi schemers’ fraudulent
acts are imputed to the Receivership Entities.
Florida’s Second District Court of Appeal addressed this exact question in
Freeman v. Dean Witter Reynolds. In that case, the court explained that while a
receiver receives his claims from the entities in receivership, he “does not always
inherit the sins of his predecessor.” Id. There are certain circumstances in which
defenses such as unclean hands or in pari delicto would not apply to claims
brought by a receiver, even if they would have applied against the entity in
receivership. Id. The court differentiated between two types of cases. On the one
hand, “there are actions that the corporation, which has been ‘cleansed’ through
receivership, may bring directly against the principals or the recipients of
fraudulent transfers of corporate funds to recover assets rightfully belonging to the
corporation and taken prior to the receivership.” Id. at 551. We addressed these
types of actions in Wiand v. Lee. There, we explained that even where a
corporation is operated by a Ponzi schemer, it is still in the eyes of the law a
separate legal entity with rights and duties. Wiand, 753 F.3d at 1202 (quoting
Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995)). The money it receives
from investors should be used for the corporation’s stated purpose, and so when
assets are transferred for an unauthorized purpose to the detriment of the defrauded
investors, who are tort creditors of the corporation, the corporation itself is harmed.
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Id. Although the corporation may have participated in the fraudulent transfers
prior to receivership, once the individual tortfeasor is removed and a receiver is
appointed, the corporation becomes entitled to the return of its assets that had been
diverted for unauthorized purposes, e.g., to perpetrate a Ponzi scheme. Id. For that
reason, we held that the receiver for the corporation has standing to sue the
recipients of fraudulent transfers under the FUFTA. Id. at 1203.
On the other hand, however, are common law tort claims against third
parties to recover damages for the fraud perpetrated by the corporation’s own
insiders. See Freeman, 865 So. 2d at 551. With respect to these claims, Freeman
held that unless the corporation in receivership has at least one honest member of
the board of directors or an innocent stockholder, the fraud and intentional torts of
the insiders cannot be separated from those of the corporation itself and the
corporation cannot be said to be an entity separate and distinct from the individual
tortfeasors. Id. The corporation—and the receiver who stands in the shoes of the
corporation—lacks standing to pursue such tort claims because the corporation,
“whose primary existence was as a perpetrator of the Ponzi scheme, cannot be said
to have suffered injury from the scheme it perpetrated.” O’Halloran v. First Union
Nat’l Bank of Fla., 350 F.3d 1197, 1203 (11th Cir. 2003). 8 Freeman thus
8
O’Halloran was a bankruptcy case in which the bankrupt entity had operated a vast
Ponzi scheme. The trustee of the bankrupt entity, along with two individual investors who were
defrauded by the Ponzi scheme, sued the bank at which the entity maintained some of its bank
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distinguished “between an honest corporation with rogue employees, which can
pursue claims for the fraud or intentional torts of third parties while in
receivership, and a sham corporation created as the centerpiece of a Ponzi scheme,
which cannot pursue such claims.” 865 So. 2d at 552.
Applying these legal principles, the court in Freeman found that the receiver
lacked standing to pursue aiding and abetting claims against third parties because
the entity in receivership itself could not pursue those claims:
[The entity] was controlled exclusively by persons engaging in its
fraudulent scheme and benefitting from it. [It] was not a large
corporation with an honest board of directors and multiple
shareholders, suffering from the criminal acts of a few rogue employees
in a regional office. It is clear from the allegations of the amended
complaint that it was created by the Grazianos to dupe the customers.
This corporation was entirely the robot or the evil zombie of the
corporate insiders.
Id. at 551. As such, it was not the corporation but the individual customers who
suffered injury as a result of the Ponzi scheme, and who may have rights to pursue
accounts for aiding and abetting certain crimes and torts, assisting in the breach of fiduciary
duties, breaching its own duties to warn and to control, and negligence. Id. at 1200–01. We
agreed with the trustee that he lacked standing to bring any claims against the bank related to the
Ponzi scheme because based on the allegations of the complaint, which described the entity as an
organization whose sole purpose was to perpetrate a Ponzi scheme, the entity was one of the
principal culprits in the Ponzi scheme, and so neither the entity nor the trustee in bankruptcy
could sue for the Ponzi-scheme-related torts. Id. at 1202–03 (citing 11 U.S.C. §§ 541–42) (“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.”). But we held that the
trustee did have standing to pursue claims against the bank arising from the alleged
embezzlement of funds from the entity’s bank account. Id. at 1204. As the holder of voidable
title to the funds in its bank account, the entity could have been legally injured when one of its
officers wrongfully embezzled money from the entity’s accounts. Id.18
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claims against third parties that allegedly aided and abetted that scheme. Id. at
553.
This case is indistinguishable from Freeman. Isaiah’s complaint depicts the
Receivership Entities as the robotic tools of the Ponzi schemers, alleging that the
Ponzi schemers “asserted complete control over the Receivership Entities in
operating the Ponzi Scheme and improperly diverting funds from the bank
accounts of the Receivership Entities.” Compl. ¶ 20. The complaint itself shows
that the Receivership Entities were wholly dominated by persons engaged in
wrongdoing and is devoid of any allegation that the Receivership Entities engaged
in any legitimate activities or had “at least one honest member of the board of
directors or an innocent stockholder” such that the fraudulent acts of its principals,
the Ponzi schemers, should not be imputed to the Entities themselves. Freeman,
865 So. 2d at 551. At least on the basis of this complaint, the Ponzi schemers’
torts cannot properly be separated from the Receivership Entities, and the
Receivership Entities cannot be said to have suffered any injury from the Ponzi
scheme that the Entities themselves perpetrated. As in Freeman, any claims for
aiding and abetting the torts of the Receivership Entities’ corporate insiders belong
to the investors who suffered losses from this Ponzi scheme, not the Receivership
Entities. The Receivership Entities thus cannot assert tort claims against third
parties like JPMC for aiding and abetting the Ponzi scheme. Because Isaiah, as
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receiver, stands in the shoes of the Receivership Entities, he too lacks standing to
bring these aiding and abetting claims against JPMC.
Contrary to Isaiah’s contention, our holding is entirely consistent with the
state court’s order appointing Isaiah receiver of the Receivership Entities. The
state court order “specifically authorized and empowered [Isaiah] to file suit
against any person(s) or entity(s) [sic] to recover property of the Receivership
Entities including, but not limited to, fraudulent conveyances and other claims and
causes of actions [sic] otherwise belonging to the Receivership Entities.” Compl.
Ex. 1 at 8 (emphasis added). The receivership order makes clear that Isaiah may
bring only those claims that would otherwise belong to the Receivership Entities.
As we have explained, any claims for aiding and abetting the Ponzi scheme do not
belong to the Receivership Entities; they belong to the defrauded investors, whom
Isaiah does not represent.
In sum, we hold that Isaiah lacks standing to assert, on behalf of the
Receivership Entities, claims against JPMC for allegedly aiding and abetting the
Ponzi schemers’ breach of fiduciary duties, conversion, and fraud. Like in
Freeman, Isaiah’s ability to pursue these claims is barred not by the doctrine of in
pari delicto, but by the fact that the Receivership Entities were controlled
exclusively by persons engaging in and benefitting from the Ponzi scheme, and so
the Receivership Entities were not injured by that scheme. 865 So. 2d at 550–51.
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In the absence of any allegation in the complaint that the Receivership Entities had
at least one innocent officer or director and were thus honest corporations injured
by the actions of a few corrupt employees, the Receivership Entities—and in turn,
Isaiah—lack standing to pursue claims against JPMC for aiding and abetting the
Ponzi scheme.9
IV.
Finally, we note that the District Court did not abuse its discretion in staying
discovery pending resolution of JPMC’s motion to dismiss. We review a district
court’s decision to stay discovery for an abuse of discretion. See Patterson v. U.S.
Postal Serv., 901 F.2d 927, 929 (11th Cir. 1990). A district court abuses its
discretion if it applies an incorrect legal standard, applies the law in an
unreasonable or incorrect manner, or follows improper procedures in making its
decision. Kolawole v. Sellers, 863 F.3d 1361, 1366 (11th Cir. 2017).
9
The District Court dismissed Isaiah’s complaint with prejudice without first giving
Isaiah a chance to amend his complaint to properly state a claim. We have held that “[a] district
court is not required to grant a plaintiff leave to amend his complaint sua sponte when the
plaintiff, who is represented by counsel, never filed a motion to amend nor requested leave to
amend before the district court.” Wagner v. Daewoo Heavy Indus. Am. Corp., 314 F.3d 541, 542
(11th Cir. 2002) (en banc) (overruling our precedent requiring that a plaintiff be given at least
one chance to amend his complaint before the district court dismisses the action with prejudice).
Isaiah, who is represented by counsel, never moved or otherwise sought leave to amend his
complaint below. To the contrary, he has maintained throughout that his complaint is sufficient
as it presently stands. Only after we ordered supplemental briefing on the standing issue did
Isaiah suggest that he should be permitted to amend his complaint to assert additional facts to
avoid dismissal. For that reason, we cannot say that the District Court erred in dismissing his
complaint with prejudice.
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“Facial challenges to the legal sufficiency of a claim or defense, such as a
motion to dismiss based on failure to state a claim for relief, should . . . be resolved
before discovery begins.” Chudasama v. Mazda Motor Corp., 123 F.3d 1353,
1367 (11th Cir. 1997). Indeed, the failure to consider and rule on these potentially
dispositive pretrial motions can be an abuse of discretion. Id. In determining
whether JPMC’s motion to dismiss was likely to be dispositive of this case, the
District Court had the benefit of a previous court’s review of Isaiah’s nearly
identical claims against a different bank. In that previous suit, the state court
dismissed Isaiah’s complaint against another bank that alleged virtually the same
claims based on similar facts. See Isaiah v. Wells Fargo Bank, N.A., No. 14-
15246-CA-40, 2015 WL 7912778 (Fla. Cir. Ct. Feb. 6, 2015). The District Court
therefore did not abuse its discretion in staying discovery pending resolution of
JPMC’s 12(b)(6) motion to dismiss challenging the legal sufficiency of Isaiah’s
claims.
V.
The vice in this case is that even if Isaiah ended up recovering damages in
his suit against JPMC, the defrauded investors—the individuals actually injured by
the Ponzi scheme—would be no better off. As the state court’s order and the
filings made in support of that order make clear, Isaiah has never represented the
defrauded investors. Rather, it has always been understood that Isaiah’s role as
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receiver is to protect the Receivership Entities’ assets, which consist of
“investments” made by the Ponzi scheme victims, from being dissipated by the
Ponzi schemers.
Indeed, the defrauded investors who sought the appointment of a receiver in
this case asked the state court in their complaint to appoint Isaiah receiver “for the
property, assets, and business [of] all Defendants named herein,” including the
Receivership Entities and the individual Ponzi schemers, to “receive, preserve, and
protect” those assets. Emergency Compl. at 15, P & M Bus. Sys., Corp. v. Coravca
Distributions, LLC, No. 10-49586-CA-40 (Fla. Cir. Ct. Sept. 13, 2010). They
likewise explained in their motion filed along with the complaint that they sought
“the appointment of a Receiver and injunctive relief to prevent [the]
Defendants . . . and any of their agents, from continuing to engage in the deceptive
practices as alleged” in the complaint. Pls.’ Emergency Ex-Parte Mot. for
Appointment of Receiver and Inj. Relief Without Notice at 1, P & M Bus. Sys.,
Corp. v. Coravca Distributions, LLC, No. 10-49586-CA-40 (Fla. Cir. Ct. Sept. 13,
2010). Moreover, in their brief in support of that motion, the investor-plaintiffs
recognized that “a temporary receiver is appointed only to preserve the property
and to protect the rights of all parties therein,” i.e., to protect the investor-
plaintiffs’ rights to the funds swindled from them by the Ponzi schemers and
currently in the hands of the Receivership Entities. Mem. of Law in Supp. of Pls.’
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Emergency Ex Parte Mot. for the Appointment of Receiver and Inj. Relief Without
Notice at 5, P & M Bus. Sys., Corp. v. Coravca Distributions, LLC, No. 10-49586-
CA-40 (Fla. Cir. Ct. Sept. 13, 2010).
Consistent with these filings, the state court appointed Isaiah receiver of the
Receivership Entities “to protect the assets of [the Receivership Entities] . . . from
being sold, transferred, alienated or otherwise dissipated until the resolution of the
instant [state court] proceeding.” Isaiah Compl. Ex. 1 at 3. For that purpose, the
receivership order provided that “[t]he Receiver shall marshal, preserve, protect,
maintain, manage and safeguard the [Receivership Entities’] Property in a
reasonable, prudent, diligent, and efficient manner.” Id. at 6. In other words, the
receivership order imposed an obligation on Isaiah to collect and preserve the
assets of the Receivership Entities to prevent dissipation of those assets by the
Ponzi schemers.
While collecting damages from third parties may indirectly benefit the
defrauded investors and other creditors of the Receivership Entities—e.g., by
enlarging the “pie” from which the creditors may ultimately recover—the receiver
does not pursue such actions on behalf of the creditors because he does not
represent those creditors. In fact, the receivership order contemplates that any
creditors of the Receivership Entities would have to file claims against the
Entities—i.e., against Isaiah—in order to secure their slice of the pie. See id. at 8
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(providing that “[t]he Receiver shall establish a procedure for creditors of the
Receivership Entities to file claims”). And by the terms of the receivership order,
Isaiah does not simply turn over the funds he collects to the Entities’ creditors, but
instead must “examine the validity and priority of all claims against the
Receivership Entities, which claims shall be finally determined by th[e] Court.”
Id. Thus, any money that Isaiah may recover in this lawsuit is not really money in
the creditors’ pockets, but instead is the property of the Receivership Entities.
Whether or not the investors receive any of that money will depend on the outcome
of additional proceedings that they must initiate against the Receivership Entities. 10
To allow receivers to bring these types of lawsuits purportedly for the
benefit of the entities’ creditors is really to usurp the claims that properly belong to
those creditors. And while the receiver continues to litigate these claims in his
own suit, the statute of limitations may be running on those claims that the
creditors actually possess and for which, if enough time has passed, they may lose
the ability to recover.
* * *
10
Not only would Isaiah be pitted against some of the investors or creditors in this sense,
but the investors themselves may also be pitted against one another or, at the very least, may
have interests adverse to one another. After all, not all investors lost money in this scheme; at
least some of the investors earned a profit on their initial investment. A review of the state court
docket in this case reveals that Isaiah has in fact filed unjust enrichment and restitution claims
against certain investors who were net-winners in the Ponzi scheme, alleging that they received
an unfair benefit at the expense of other defrauded investors. See, e.g., Compl., Isaiah v. High
Quality Finish Carpentry Corp., No. 13-031130-CA-01 (Fla. Cir. Ct. Sept. 30, 2013).
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With that final thought, the District Court’s orders staying discovery and
granting JPMC’s Rule 12(b)(6) motion to dismiss are
AFFIRMED.
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