O'Halloran v. First Union Nat. Bank of Florida
| Decision Date | 14 November 2003 |
| Docket Number | No. 02-13084.,02-13084. |
| Citation | 350 F.3d 1197 |
| Parties | Kevin O'HALLORAN, as Chapter 11 Trustee for Greater Ministries International, Inc., et al., William C. Smith, John Tingue, individuals suing on behalf of themselves and all persons similarly situated, Plaintiffs-Appellants, v. FIRST UNION NATIONAL BANK OF FLORIDA, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Michael Charles Skotnicki, Haskell, Slaughter, Young & Rediker, LLC, Birmingham AL, Michael C. Addison, Addison & Delano, P.A., Tampa, FL, for Plaintiffs-Appellants.
J. Andrew Meyer, Gary L. Sasso, Carlton, Fields, Ward, Emmanuel, Smith & Cutler P.A., Saint Petersburg, FL, for Defendant-Appellee.
Appeal from the United States District Court for the Middle District of Florida.
Before TJOFLAT, ANDERSON and CUDAHY*, Circuit Judges.
Through the 1980s and 1990s, Greater Ministries International, Inc., 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 dismissal and remand the case, with instructions to allow the plaintiffs leave to amend their complaint.
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 (11th Cir.1990).
During the 1980s and 1990s, Greater Ministries International, Inc., later known as Greater Ministries Church, purported to operate a church in Tampa, Florida. While Greater Ministries may have conducted services and engaged 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 "Double-Your-Blessings" program, the "Greater Trust Gift Exchange" and the "Faith Promise Plan," this "investment program" lured prospective investors with spectacular returns. 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 enough other investors to produce the 100% return promised to be available 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 network of "elders," who received as much as a 5% commission on investment funds secured through their efforts. According to the plaintiffs, Greater Ministries managed to defraud more than 15,000 victims out of an estimated total of $500 million.
The investors' funds were funneled by Greater Ministries 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 heart of this lawsuit.
During the period that Greater 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 laundering scheme money flowing through its accounts." First Am. Compl. at 14 para. 15, Record at 16. According to the plaintiffs, this knowledge came from numerous Tampa Tribune articles about investigations by various states 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 Greater Assurance Trust (Greater Ministries' foray into 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. According 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.
Between August and November 1998, First Union allowed Payne to withdraw about six million dollars from the Greater Ministries accounts. For example, on August 25, 1998, Payne took delivery of $2,892,900 in $100 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 documentation "as ostensible authorization" for the cash deliveries. Id. at 29 para. 29. Much of this money was never seen again by the investors or by the government. In 2001, Payne was sentenced to 27 years in federal prison for fraud and other offenses. His wife was sentenced to 13 years.
As a result of the continuing criminal investigation of Greater Ministries and Payne, Greater Ministries was put into federal receivership in August 1999. Shortly thereafter, the federal receiver, with authorization from the district court, initiated an involuntary bankruptcy case against Greater Ministries, and Kevin 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 Tingue, two individual investors defrauded by Greater Ministries' Ponzi scheme, brought the present action. The plaintiffs alleged four different state law claims against First Union: aiding and abetting crimes and torts, assisting breach of fiduciary duties, breach of duties to warn and to control and negligence. The district court granted the defendant's Fed. R.Civ.P. 12(b)(6) motion 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.1990), the court held that Greater Ministries was simply a "conduit 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 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 Ministries' misdeeds would not activate a duty by First Union to the investors in the absence of a fiduciary relationship.
We review de novo a Fed.R.Civ.P. 12(b)(6) dismissal. 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 $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 deceptive solicitation of investments engaged in by Greater Ministries and Payne. This "Ponzi claim" is arguably contained within the language of the complaint. See First Am. Compl. at 38 para. 45, Record at 16 ().
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 argument:
Appellants: The trustee is not suing to collect for the Ponzi scheme damage. There indeed is a separate lawsuit that's going to trial ... for that.
. . .
Appellants: We all believe that the ownership of the [...
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