Zamora v. JP Morgan Chase Bank, N.A.

• Court: Court of Appeals for the Second Circuit
• Decided: November 6, 2020
• Docket: 19-2108
• Status: Unpublished

Opinion

19-2108 Zamora v. JP Morgan Chase Bank, N.A.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 6th day of November, two thousand twenty.

Present: DEBRA ANN LIVINGSTON, Chief Judge, BARRINGTON D. PARKER, GERARD E. LYNCH, Circuit Judges. _____________________________________

DANIEL ZAMORA, CGC, INC.,

Plaintiffs-Appellants,

v. 19-2108

FIT INTERNATIONAL GROUP CORP., FOREX INTERNATIONAL TEAM INC., JAIRO ENRIQUE SANCHEZ, DILIA MARGARITA BAEZ, JP MORGAN CHASE BANK, N.A., JPMORGAN CHASE & CO.,

Defendants-Appellees. _____________________________________

For Plaintiffs-Appellants: DAVID J. STANDER, Law Office of David J. Stander, Rockville, MD

David A. Bellon, Flushing, NY (on the brief)

1 For Defendants-Appellees JP JAMIE S. DYCUS (Noah A. Levine and Alexandra Hiatt, Morgan Chase Bank, N.A. and on the brief), Wilmer Cutler Pickering Hale and Dorr JPMorgan Chase & Co. LLP, New York, NY

Appeal from a judgment of the United States District Court for the Southern District of

New York (Pauley, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is AFFIRMED.

Plaintiffs-Appellants Daniel Zamora and CGC, Inc. (“Plaintiffs”) appeal from a judgment

of the United States District Court for the Southern District of New York (Pauley, J.) granting

Defendants-Appellees’ motion to dismiss as to Defendants-Appellees JP Morgan Chase Bank,

N.A. and JPMorgan Chase & Co. (together, “JPMorgan”). On appeal, Plaintiffs challenge the

dismissal of their claims against JPMorgan—specifically, their federal Racketeer Influenced and

Corrupt Organizations Act (“RICO”) and RICO conspiracy claims (Counts 4 and 5 of the

Amended Complaint, respectively) and their state-law claims for fraudulent misrepresentation,

knowing participation in a breach of trust, aiding and abetting a breach of fiduciary duty,

conversion, aiding and abetting conversion, unjust enrichment, breach of fiduciary duty,

commercial bad faith, gross negligence, and aiding and abetting fraud (Counts 6, 7, 9, 10, 11, 12,

13, 14, 15, and 17 of the Amended Complaint, respectively). Plaintiffs’ claims arise out of a

fraud, money laundering, and embezzlement scheme allegedly perpetrated by Dilia Margarita Baez

and Jairo Enrique Sanchez, two Colombian nationals, as well as FIT International Corp. and Forex

International Team Inc. (together, the “FIT Entities”). We assume the parties’ familiarity with

the underlying facts, the procedural history of the case, and the issues on appeal.

* * *

2 We review de novo the district court’s judgment granting JPMorgan’s motion to dismiss.

Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 99–100 (2d Cir. 2015). “To survive a motion

to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim

for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Id. “Threadbare recitals of the elements of a

cause of action, supported by mere conclusory statements, do not suffice.” Id. “We may affirm

on any ground that finds support in the record, regardless of the grounds upon which the district

court relied.” Ellul v. Congregation of Christian Bros., 774 F.3d 791, 796 (2d Cir. 2014).

A. RICO and RICO Conspiracy

The district court dismissed Plaintiffs’ RICO and RICO conspiracy claims because it found

that Plaintiffs failed to allege plausibly that JPMorgan was part of an association-in-fact

“enterprise” with Baez, Sanchez, and the FIT Entities. We agree. To state a claim for relief

under RICO, a plaintiff must plead: “(1) conduct (2) of an enterprise (3) through a pattern (4) of

racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985). “RICO

broadly defines ‘enterprise’ in § 1961(4) to ‘includ[e] any individual, partnership, corporation,

association, or other legal entity, and any union or group of individuals associated in fact although

not a legal entity.’” Nat’l Org. for Women., Inc. v. Scheidler, 510 U.S. 249, 257 (1994) (alteration

in original). An association-in-fact enterprise “is proved by evidence of an ongoing organization,

formal or informal, and by evidence that the various associates function as a continuing unit.”

United States v. Boyle, 556 U.S. 938, 945 (2009) (internal quotation marks omitted) (quoting

United States v. Turkette, 452 U.S. 576, 583 (1981)). Such an enterprise “must have at least three

3 structural features: a purpose, relationships among those associated with the enterprise, and

longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Id. at 946.

As to the purpose requirement, a plaintiff must demonstrate that the members of the association

“share a common purpose to engage in a particular fraudulent course of conduct and work together

to achieve such purposes.” Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 120 (2d Cir. 2013)

(internal quotation marks omitted) (quoting First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385

F.3d 159, 174 (2d Cir. 2004)).

Here, Plaintiffs’ allegations fall far short of permitting a plausible inference that JPMorgan

shared in the alleged association-in-fact enterprise’s common purpose. Although the Amended

Complaint alleges that JPMorgan shared in the alleged RICO enterprise’s common purpose to

defraud investors and convert funds and property for personal gain, that allegation is little more

than a “‘naked assertion’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678

(alteration omitted) (quoting Twombly, 550 U.S. at 557). Indeed, the Amended Complaint lacks

any “specific factual allegation[s] about the intent” of JPMorgan to defraud investors. Cruz, 720

F.3d at 121. At best, the allegations in the Amended Complaint plausibly suggest that JPMorgan

entered into “a routine contractual combination for the provision of financial services” with the

remaining defendants, which is insufficient on its own to permit a reasonable inference that

JPMorgan shared in their purported illicit purpose. Singh v. NYCTL 2009-A Trust, No. 14-CV-

2558, 2016 WL 3962009, at *10 (S.D.N.Y. July 20, 2016) (internal quotation marks omitted)

(quoting Jubelirer v. MasterCard Int’l, Inc., 68 F. Supp. 2d 1049, 1053 (W.D. Wis. 1999)). That

JPMorgan generated unspecified fees and profits from the FIT Entities’ account activities plausibly

alleges only a benefit incidental to the ordinary and lawful banking relationship. To that end, the

allegations fail to suggest why JPMorgan would share in the goal of defrauding investors.

4 Plaintiffs argue they plausibly allege that JPMorgan shared in the RICO enterprise’s

common purpose because they plausibly allege that the JPMorgan employee who opened the

accounts for the FIT Entities was complicit in the fraudulent scheme. However, Plaintiffs’

allegations that the JPMorgan employee engaged in criminal activity along with Baez and Sanchez

are merely speculative. The facts alleged in the Amended Complaint permit only the reasonable

inference that the JPMorgan employee engaged in the ordinary business activities of opening bank

accounts for the FIT Entities and cultivating a business relationship with the FIT Entities, Baez,

and Sanchez. Indeed, at oral argument in the district court, Plaintiffs admitted they were not

aware of anything that the JPMorgan employee affirmatively did aside from opening bank

accounts for the FIT Entities.

Accordingly, Plaintiffs have failed sufficiently to plead the existence of an association-in-

fact enterprise and have failed to state a claim for relief under § 1962(c) of the RICO statute. And

in the circumstances here, Plaintiffs’ failure to state a claim for a substantive RICO violation is

fatal to their RICO conspiracy claim under § 1962(d), given that Plaintiffs rely on the same factual

predicate to plead both the substantive RICO violation and the conspiracy claim against JPMorgan.

See First Capital, 385 F.3d at 164 (“[B]ecause Plaintiffs’ RICO conspiracy claims are entirely

dependent on their substantive RICO claims, we also concur in the District Court’s dismissal of

the RICO conspiracy claims.”).

B. Fraudulent Misrepresentation

The district court dismissed Plaintiffs’ claim for fraudulent misrepresentation because it

found that Plaintiffs’ allegations fall short of the heightened pleading standards of Fed. R. Civ. P.

9(b). “To state a claim for fraudulent misrepresentation under New York law[,] ‘a plaintiff must

show that (1) the defendant made a material false representation, (2) the defendant intended to

5 defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the

plaintiff suffered damage as a result of such reliance.’” Eternity Glob. Master Fund Ltd. v.

Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 186–87 (2d Cir. 2004) (quoting Banque Arabe et

Internationale D’Investissement v. Md. Nat’l Bank, 57 F.3d 146, 153 (2d Cir. 1995)). To comply

with Rule 9(b) as to a claim of fraudulent misrepresentation, “the complaint must: (1) specify the

statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and

when the statements were made, and (4) explain why the statements were fraudulent.” Lerner v.

Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quoting Mills v. Polar Molecular Corp., 12

F.3d 1170, 1175 (2d Cir. 1993)).

We agree with the district court that Plaintiffs have failed to satisfy the requirements of

Rule 9(b) as to JPMorgan. As the district court noted, most of Plaintiffs’ allegations concerning

false statements are aimed at Baez and Sanchez, not JPMorgan. With respect to JPMorgan,

Plaintiffs allege only that: “JPMorgan employees knowingly made material false statements and

representations[,] including . . . [s]upplying Plaintiffs with false and fraudulent bank account

statements,” App’x at 122 (Compl. ¶ 75); “JPMorgan falsely represented to victims that the funds

from the 66 Account had already been deposited into that account and those funds could not be

distributed to anyone other than to trade in the Forex market,” App’x at 107–08 (Compl. ¶ 44);

and “[o]n information and belief, JPMorgan officials repeatedly provided bank records, including

account balances, verifications, and other documents confirming that the funds in the Plaintiffs’

escrow accounts were secure in those accounts,” App’x 108 (Compl. ¶ 44). These allegations

provide little specificity regarding what the fraudulent statements were or where, when, and by

whom they were made. In that respect, they fall far short of the heightened pleading requirements

of Rule 9(b).

6 C. Knowing Participation in a Breach of Trust, Aiding and Abetting a Breach of Fiduciary Duty, Aiding and Abetting Conversion, Commercial Bad Faith, and Aiding and Abetting Fraud

The district court dismissed Plaintiffs’ claims for knowing participation in a breach of trust,

aiding and abetting a breach of fiduciary duty, aiding and abetting conversion, commercial bad

faith, and aiding and abetting fraud for Plaintiffs’ failure to plausibly allege JPMorgan’s actual

knowledge of the underlying fraudulent conduct allegedly committed by Baez, Sanchez, and the

FIT Entities. 1 Under New York law, claims for knowing participation in a breach of trust, aiding

and abetting a breach of fiduciary duty, aiding and abetting conversion, commercial bad faith, and

aiding and abetting fraud all require a plaintiff to demonstrate that the defendant had “actual

knowledge” of the misconduct at issue. See Bigio v. Coca-Cola Co., 675 F.3d 163, 172 (2d Cir.

2012) (aiding and abetting conversion); Lerner, 459 F.3d at 292–95 (commercial bad faith, aiding

and abetting fraud, and aiding and abetting a breach of fiduciary duty); see also SPV Osus Ltd. v.

UBS AG, 882 F.3d 333, 345 (2d Cir. 2018) (knowing participation in a breach of trust). Mere

“constructive knowledge” of the purported misconduct does not satisfy the “actual knowledge”

inquiry as to any of these claims. See, e.g., Krys v. Pigott, 749 F.3d 117, 127–28 (2d Cir. 2014)

(aiding and abetting fraud and aiding and abetting a breach of fiduciary duty); In re Agape Litig.,

773 F. Supp. 2d 298, 309–13, 325–26 (E.D.N.Y. 2011) (aiding and abetting conversion); see also

SPV Osus Ltd, 882 F.3d at 345 (knowing participation in a breach of trust). Moreover, where, as

here, allegations in a complaint sound in fraud, a plaintiff must “plead facts giving rise to [a]

‘strong inference’ of actual knowledge of fraud[,] [as] required by Federal Rule of Civil Procedure

1 The district court also held that Plaintiffs failed to state aiding and abetting claims because they did not plausibly allege JPMorgan’s substantial assistance in the underlying fraud. Given our agreement with the district court’s analysis as to actual knowledge, however, we need not address this alternative holding.

7 9(b).” E.g., Lerner, 459 F.3d at 292–95 (applying Rule 9(b) to commercial bad faith, aiding and

abetting a breach of fiduciary duty, and aiding and abetting fraud claims and requiring a “strong

inference” of actual knowledge).

We are not persuaded that Plaintiffs’ allegations permit a plausible inference, let alone a

strong inference, that JPMorgan had actual knowledge of the fraudulent conduct committed by

Baez, Sanchez, and the FIT Entities. Throughout the Amended Complaint, Plaintiffs offer

consistently conclusory allegations that JPMorgan knew or should have known about the alleged

fraudulent conduct. Such conclusory allegations are flatly insufficient. See Iqbal, 556 U.S. at

681. So, too, are Plaintiffs’ allegations concerning the purported knowledge of the JPMorgan

employee who opened the accounts for the FIT Entities, as we discussed above.

At their core, Plaintiffs’ allegations rely on the theory that JPMorgan must have known of

the alleged misconduct. Demonstrative of JPMorgan’s knowledge, according to Plaintiffs, are

their bald allegations that JPMorgan ignored a host of red flags concerning the alleged fraud of

which they were or should have been aware, including that the FIT Entities commingled investor

funds, that Baez and Sanchez refused to cooperate with government investigations, and that the

FIT Entities were never registered as futures commodities merchants with the National Futures

Association (“NFA”). But these red flags, as alleged, are insufficient to impute knowledge of the

scheme to JPMorgan because, even assuming arguendo that they may have put JPMorgan on

notice that “some impropriety may have been taking place,” they do not create a strong inference

of actual knowledge of the FIT Entities’ “outright theft of client funds.” Lerner, 459 F.3d at

294. 2 Plaintiffs’ speculation that JPMorgan must have known about the scheme because it had

2 Although we have held that a bank’s knowledge of commingling client funds may be sufficient to permit a strong inference of knowledge of a breach of fiduciary duty, Lerner, 459 F.3d at 294, Plaintiffs here offer no more than the conclusory allegation that “JPMorgan permitted all funds from putative

8 in place unspecified anti-money-laundering controls is similarly insufficient to support a strong

inference of actual knowledge here.

To the extent Plaintiffs argue that they satisfy their pleading burden on a theory of

conscious avoidance, they are also mistaken. Even assuming they may bring their claims on such

a theory, see Krys, 749 F.3d at 131 (noting that it is unclear whether under New York law a plaintiff

may satisfy the “actual knowledge” inquiry by showing conscious avoidance), Plaintiffs do not

allege any facts remotely suggesting that JPMorgan refrained from investigating facts concerning

the FIT accounts specifically to avoid knowledge of the fraud, see id. at 131–32 (noting that to

proceed on a conscious avoidance theory, a plaintiff must show that a defendant “‘was aware of a

high probability of the [relevant] fact . . . and consciously avoided confirming that fact’”) (quoting

United States v. Ebbers, 458 F.3d 110, 124 (2d Cir. 2006)). Accordingly, the district court did

not err in concluding that Plaintiffs failed to state claims for knowing participation in a breach of

trust, aiding and abetting a breach of fiduciary duty, aiding and abetting conversion, commercial

bad faith, and aiding and abetting fraud.

D. Conversion

The district court dismissed Plaintiffs’ conversion claim because it found that Plaintiffs

failed to plead JPMorgan’s dominion over the property or interference with it, in derogation of

their rights. It furthermore held that Plaintiffs failed to meet their pleading burden under Rule

9(b). Under New York law, “[c]onversion is the unauthorized assumption and exercise of the

right of ownership over goods belonging to another to the exclusion of the owner’s rights.”

Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 403–04 (2d Cir. 2006) (alteration in original)

investors to be commingled into a single account,” App’x at 94 (Compl. ¶ 8), without any description as to how JPMorgan was aware of such commingling.

9 (internal quotation marks omitted) (quoting Vigilant Ins. Co. of Am. v. Hous. Auth., 87 N.Y.2d 36,

44 (1995)). The “[t]wo key elements of conversion are (1) [the] plaintiff’s possessory right or

interest in the property . . . and (2) [the] defendant’s dominion over the property or interference

with it, in derogation of [the] plaintiff’s rights.” Colavito v. N.Y. Orgon Donor Network, Inc., 8

N.Y.3d 43, 50 (2006) (citations omitted). Where a claim for conversion “rests on an allegation

of fraudulent taking,” it is furthermore “subject to the pleading requirements of Rule 9(b).” Daly

v. Castro Llanes, 30 F. Supp. 2d 407, 414 (S.D.N.Y. 1998).

We agree with the district court that Plaintiffs’ allegations fall well short of plausibly

alleging JPMorgan’s dominion over the property or interference with it, in derogation of their

rights. Plaintiffs do little more than plead the elements of the cause of action with respect to their

conversion claim, which does not suffice. See Iqbal, 556 U.S. at 678 (“A pleading that offers

‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not

do.’” (quoting Twombly, 550 U.S. at 555)). Indeed, Plaintiffs’ factual allegations are sufficient

only to plead that Plaintiffs’ funds were being held by Baez, Sanchez, and the FIT Entities in

JPMorgan accounts and were ultimately misappropriated by Baez, Sanchez, and the FIT Entities.

Plaintiffs have therefore failed to state a claim for conversion against JPMorgan.

D. Breach of Fiduciary Duty and Gross Negligence

The district court held that Plaintiffs failed to allege plausibly that JPMorgan owed them a

duty for purposes of their breach of fiduciary duty and gross negligence claims. 3 Under New

3 It also dismissed Plaintiffs’ unjust enrichment claim because it found that Plaintiffs’ relationship with JPMorgan was too attenuated to permit such a claim. We need not address this claim here, however, because Plaintiffs have waived appellate review of this claim by providing no specific arguments in support of it in their appellate brief. See Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir. 1998) (noting that “[i]ssues not sufficiently argued in the briefs are considered waived and normally will not be addressed on appeal”).

10 York law, claims for breach of fiduciary duty require a plaintiff to plead: “(i) the existence of a

fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom.” Spinelli

v. Nat’l Football League, 903 F.3d 185, 207 (2d Cir. 2018) (internal quotation marks omitted)

(quoting Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131, 138 (2d Cir. 2011)). Similarly, claims

for gross negligence require a plaintiff to plead that the defendant owed a duty of care to the

plaintiff. See NASDAQ OMX Grp., Inc. v. UBS Secs., LLC, 770 F.3d 1010, 1023 (2d Cir. 2014).

Banks generally do not owe non-customers a duty to protect them from fraud perpetrated by

customers. See Lerner, 459 F.3d at 286–87. Indeed, “a depositary bank has no duty to monitor

fiduciary accounts maintained at its branches in order to safeguard funds in those accounts from

fiduciary misappropriation.” Id. at 287 (internal quotation marks omitted) (quoting Norwest

Mortg., Inc. v. Dime Sav. Bank of N.Y., 721 N.Y.S.2d 94, 95 (2d Dep’t 2001)).

Notably, we have recognized a narrow exception to the rule that banks owe no duty to

protect third parties from the fraudulent conduct of bank customers when a bank fails to act to

safeguard trust funds on deposit in a fiduciary account after being “confronted with clear evidence

indicating that those funds are being mishandled.” Id. at 295. Under this exception, a “bank

has the right to presume that the fiduciary will apply the funds to their proper purposes under the

trust,” and the bank loses the right to this presumption when faced with “circumstances which

reasonably support the sole inference that a misappropriation is intended.” Id. at 287 (internal

quotation marks omitted) (quoting Bischoff ex rel. Schneider v. Yorkville Bank, 218 N.Y. 106, 111,

113 (1916)).

This exception is inapplicable to the facts as pleaded in the Amended Complaint.

Plaintiffs’ bald allegations that JPMorgan knew or should have known that Baez, Sanchez, and the

FIT Entities commingled investor funds, refused to cooperate with government investigations, and

11 failed to register with the NFA are insufficient, without more, to support a reasonable inference

that JPMorgan had “clear evidence” of the misconduct at issue. And although Plaintiffs allege

that the FIT Entities engaged in voluminous international account transfers, they have failed to

explain how these isolated transfers of money necessarily constitute “clear evidence” of

misappropriation. We therefore agree with the district court that Plaintiffs have failed to state

claims for breach of fiduciary duty and gross negligence against JPMorgan.

We have considered Plaintiffs’ remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the judgment of the district court. Plaintiffs’ pending motion to

supplement the record is DENIED as moot.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk