Benson v. JPMorgan Chase Bank, N.A.

• Decision Date: 20 March 2012
• Docket Number: 10–17404.,Nos. 10–17402,s. 10–17402
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: Kimberly BENSON; Karimdad Baloch; and Neerja Jain Gursahaney, individually and on behalf of all others similarly situated, Plaintiffs–Appellants, v. JPMORGAN CHASE BANK, N.A., individually and as successor in interest of Washington Mutual, Inc., Defendant–Appellee.John Alexander Lowell, individually and on behalf of all others similarly situated, Plaintiff–Appellant, v. JPMorgan Chase Bank, N.A., individually and as successor in interest of Washington Mutual, Inc., Defendant–Appellee.

12 Cal. Daily Op. Serv. 3252

2012 Daily Journal D.A.R. 3662

673 F.3d 1207

Kimberly BENSON; Karimdad Baloch; and Neerja Jain Gursahaney, individually and on behalf of all others similarly situated, Plaintiffs–Appellants,

v.JPMORGAN CHASE BANK, N.A., individually and as successor in interest of Washington Mutual, Inc., Defendant–Appellee.John Alexander Lowell, individually and on behalf of all others similarly situated, Plaintiff–Appellant,

v.JPMorgan Chase Bank, N.A., individually and as successor in interest of Washington Mutual, Inc., Defendant–Appellee.

Nos. 10–17402

10–17404.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 6, 2011.Filed March 20, 2012.

Niall P. McCarthy, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA (Anne Marie Murphy and Aron K. Liang, Cotchett, Pitre & McCarthy, LLP, Burlingame, CA, and Derek G. Howard and Bethany Caracuzzo, Minami Tamaki LLP, San Francisco, CA, with him on the briefs), for the plaintiffs-appellants.

Robert A. Sacks (Stacey R. Friedman and M. David Possick with him on the briefs), Sullivan & Cromwell LLP, Los Angeles, CA, for the defendant-appellee.

Appeal from the United States District Court For the Northern District of California, Maria–Elena James, Chief Magistrate Judge, Presiding. D.C. Nos. 3:09–cv–05272–MEJ, 3:09–cv–05560–MEJ.Before: CARLOS F. LUCERO,^* CONSUELO M. CALLAHAN, and N. RANDY SMITH, Circuit Judges.

OPINION

LUCERO, Circuit Judge:

Plaintiffs, a group of investors defrauded by the “Millennium Ponzi scheme,” seek recourse against JPMorgan Chase Bank N.A. (“JPMorgan”). They allege that Washington Mutual, Inc. (“WaMu”) aided and abetted the Ponzi scheme by providing banking services to several companies controlled by the scheme's principals despite actual knowledge of the fraud. JPMorgan, they argue, is liable as successor in interest of WaMu, having purchased most of WaMu's assets and liabilities from the Federal Deposit Insurance Corporation (“FDIC”). The FDIC had taken WaMu into receivership pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101–73, 103 Stat. 183 (“FIRREA”). Plaintiffs further claim JPMorgan is liable because it continued WaMu's problematic practices following assumption.

The district court dismissed plaintiffs' complaints for failure to exhaust FIRREA's administrative remedies. See 12 U.S.C. § 1821(d)(13)(D)(ii) (barring “any claim relating to any act or omission of [a failed bank] or the [FDIC] as receiver” unless such claim is first presented to the FDIC). Plaintiffs contend, however, that FIRREA's jurisdictional bar is limited to claims against a failed bank or the FDIC and thus has no application to claims asserted against a purchasing bank with assets that passed through FDIC receivership. They further argue that portions of their claims are based on JPMorgan's independent, post-purchase conduct, which is not governed by FIRREA.

We reject plaintiffs' first contention. Litigants cannot avoid FIRREA's administrative requirements through strategic pleading. Accordingly, we join three other circuits in concluding that a claim asserted against a purchasing bank based on the conduct of a failed bank must be exhausted under FIRREA. See Am. Nat'l Ins. Co. v. FDIC, 642 F.3d 1137, 1144 (D.C.Cir.2011); Village of Oakwood v. State Bank & Trust Co., 539 F.3d 373, 386 (6th Cir.2008); Am. First Fed., Inc. v. Lake Forest Park, Inc., 198 F.3d 1259, 1263 n. 3 (11th Cir.1999).

The same is not true, however, with respect to claims based on a purchasing bank's post-purchase actions. Such claims are not governed by FIRREA. They could not, and accordingly need not, be exhausted before the FDIC. See Henderson v. Bank of New England, 986 F.2d 319, 321 (9th Cir.1993) (FIRREA applies only to claims that are “susceptible of resolution through the claims procedure”).

Although we agree with plaintiffs' legal argument on this score, we conclude it has no application to the case at bar. Plaintiffs did not adequately plead a claim based on JPMorgan's independent conduct; they relied instead solely on conclusory allegations. The district court's dismissal of plaintiffs' claims, along with its subsequent denial of plaintiffs' Federal Rule of Civil Procedure 60(b) motion, was therefore proper. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I

A

We draw the following facts from plaintiffs' complaints.¹ In 1999, Canadian attorney William J. Wise initiated the Millennium Ponzi scheme. Wise formed the Millennium Bank and Trust Company, later renamed the Millennium Bank, in St. Vincent and the Grenadines. He began selling what he claimed were high-yield Certificates of Deposit (“CDs”) issued by subsidiaries of the United Trust of Switzerland S.A. In fact, the CDs sold by Wise and his associates were fraudulent, the Millennium Bank was not affiliated with any Swiss banking company, and the company was not licensed to sell securities. The Millennium Bank originally obtained financial services from several banks in North Carolina, but those institutions closed Wise's accounts due to suspicious activity.

In July 2004, Wise and two of his associates, Jacqueline and Kristi Hoegel, formed three Nevada business entities with names similar to United Trust of Switzerland: UT of S, LLC; United T of S, LLC; and Sterling I.S., LLC (collectively, the “Nevada LLCs”). The Hoegels used these entities to operate the banking side of the scheme from Napa, California. They would regularly deposit large checks in bulk at the Napa WaMu branch and immediately wire large sums to “known banking and tax havens.” Most checks that the Hoegels deposited had handwritten notations that indicated they were tendered in exchange for CDs. However, based on paperwork submitted at the time the accounts for the Nevada LLCs were opened, WaMu was aware that the companies were not licensed to sell securities in the United States.

Two WaMu employees provided substantial assistance to the Hoegels: branch manager Tamara Miller and commercial banking officer Bianca Greeves. Greeves recommended in February 2008 that the Nevada LLCs install a “cash management transfer” (“CMT”) system at the Nevada LLCs' office. CMT systems, which allow outgoing wire transfers to be sent without the direct assistance of bank staff, are usually provided to large institutions with multinational operations. Before providing the CMT system, WaMu was required to conduct a detailed audit. Jennifer Blevins, a Business Treasury Services Senior Specialist for WaMu, approved the use of a CMT system for the Nevada LLCs after investigating the nature of their business, their financial strength, the number of their employees, and the amount of money coming in and out of their accounts each month. In September 2008, Greeves further recommended that the Nevada LLCs obtain a “remote deposit capture” (“RDC”) system, which allows companies to scan and deposit checks without presenting them to a bank. Installing this system required a second and more detailed audit, which was again conducted by Blevins.

On September 22, 2008, the Federal Deposit Insurance Company (“FDIC”) seized WaMu pursuant to its authority under FIRREA. Three days later, JPMorgan acquired most of WaMu's assets and liabilities under a purchase and assumption agreement with the FDIC.

The Millennium Ponzi scheme came to an end several months later. On March 25, 2009, the Securities and Exchange Commission filed an action against Wise. It alleged that Wise, the Hoegels, and their associates had raised at least $68 million by selling fraudulent CDs. A receiver took control of the Nevada LLCs' assets and those of the Millennium Ponzi scheme principals. All suits against those individuals and entities were enjoined.

B

In November 2009, two similar complaints involving the Millennium Ponzi scheme were filed against JPMorgan. The first was filed by Kimberly Benson, Karimdad Baloch, and Neerja Gursahaney, and the second by John Lowell. The first set of plaintiffs purchased what they believed were CDs from the Nevada LLCs between May 2006 and August 2008. Lowell did not state when he purchased fraudulent CDs. Both complaints asserted claims for aiding and abetting fraud, aiding and abetting conversion, and violating California banking law. The complaint by Benson, Baloch, and Gursahaney also asserted claims for aiding and abetting breach of fiduciary duty, and conspiracy to commit fraud and conversion. Both complaints sought certification of a class of similarly situated victims of the Millennium Ponzi scheme. The two cases were consolidated below.

The district court dismissed the conspiracy claims on JPMorgan's Federal Rule of Civil Procedure 12(b)(6) motion, but denied that motion as to plaintiffs' remaining claims. JPMorgan then filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the district court lacked jurisdiction because plaintiffs had not exhausted administrative remedies under FIRREA. The district court granted that motion and ordered the clerk of the court to “close the file” for the case. No separate judgment was entered.

Plaintiffs then filed a Rule 60(b) motion seeking reconsideration of the district court's order and an opportunity to amend their complaints. They argued that even if their claims based on WaMu's conduct could be dismissed, the complaints alleged independent misconduct on the part of JPMorgan. Although the complaints do not detail any specific actions taken by JPMorgan, an introductory paragraph states that despite actual knowledge of the Millennium Ponzi scheme, “[WaMu] continued to provide substantial assistance to Wise's illegal enterprise and promoted the continued success of that enterprise for a period in excess of four years” and that “[t]hese practices continued after JPMorgan acquired [WaMu] in September of 2008.” The district court denied reconsideration.

II

We review de novo a district court's dismissal under Rule 12(b)(1)....