Hsi Chang v. JPMorgan Chase Bank, N.A.

• Citation: 841 F.3d 914
• Decision Date: 08 November 2016
• Docket Number: Nos. 15–13636,15–14529,s. 15–13636
• Parties: Hsi Chang, a.k.a. Mark Chang, Plaintiff–Appellant, v. JPMorgan Chase Bank, N.A., Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

841 F.3d 914

Hsi Chang, a.k.a. Mark Chang, Plaintiff–Appellant,

v.JPMorgan Chase Bank, N.A., Defendant–Appellee.

Nos. 15–13636

15–14529

United States Court of Appeals, Eleventh Circuit.

November 8, 2016

Brenda Marie Nelson, Carl Francis Schoeppl, Jr., Schoeppl Law, PA, BOCA RATON, FL, for Plaintiff–Appellant.

Andrew R. Herron, Herron Jacobs Ortiz, PA, MIAMI, FL, Brian Lechich, Herron Ortiz, CORAL GABLES, FL, for Defendant–Appellee.

Before ROSENBAUM and JILL PRYOR, Circuit Judges, and UNGARO,^* District Judge.

JILL PRYOR, Circuit Judge:

Plaintiff Hsi Chang appeals the district court's denial of his motion for reconsideration of its earlier order denying on futility grounds Chang's motion for leave to amend his complaint. The district court denied the motion for reconsideration because, even considering the proposed allegations set forth in the motion, Chang would not be able to state a legally sufficient claim for negligence, gross negligence, or aiding and abetting fraud or conversion against Defendant JPMorgan Chase Bank, N.A. (the “Bank”). We disagree that the amendment would be futile.

Chang asserted in his motion that he had developed facts in discovery which showed that (1) a Bank employee knew that Charles Gordon, the chief executive officer of OPT Title and Escrow, Inc., had assisted Gordon in opening a bank account called an “escrow account” into which funds were to be wired by third parties with the expectation that the funds would be held in escrow by OPT Title; (2) the Bank employee knew that Gordon was stealing from the account; (3) the Bank employee assisted Gordon in committing the fraud; and (4) the Bank received at least a short-term financial benefit from allowing Gordon to use OPT Title's account as a vehicle for his fraud.

Although Chang was not a Bank customer, these facts, if proven, are sufficient to establish that the Bank owed Chang a duty of care and, therefore, the Bank may be held liable under negligence theories. Additionally, these facts are sufficient to state a claim for aiding and abetting fraud or conversion by the Bank because Chang plausibly claims that the Bank rendered substantial assistance to Gordon in the commission of the fraud and misappropriation. Thus, after careful consideration and with the benefit of oral argument, we hold that the district court erred in denying Chang's motion for reconsideration on the basis that even considering his new allegations set forth in his motion for reconsideration, he failed to state claims for relief. Accordingly, we reverse the district court's denial of the motion for reconsideration, reverse the judgment dismissing Chang's claims with prejudice, and remand the case for further proceedings.¹

I. BACKGROUND

A. The Fraudulent Scheme²

This case arises out of a scheme in which Charles Gordon stole $750,000 from Chang. Gordon owned and served as the chief executive officer of OPT Title, a Florida corporation, and Ziggurat (Panama), S.A., a Panamanian corporation. Ziggurat's purported business was to secure for its clients multi-million dollar loans from global banking institutions and underwriters. Gordon told Ziggurat's clients that because the financial institutions required proof of their liquidity to obtain financing, the clients needed to deposit a percentage of the total amount to be financed in an escrow account OPT Title maintained with the Bank. Gordon had clients transfer the escrow funds into an account at the Bank titled “OPT Title & Escrow Inc Escrow Account” (the “OPT Escrow Account”). Instead of holding the funds in escrow, however, Gordon diverted the money to pay Ziggurat's operating expenses and his personal expenses. Under this scheme, Gordon diverted more than $3,000,000.

In January 2010, Chang was approached by Chris Lim about advancing $750,000 to fund an escrow deposit for a Ziggurat client who was attempting to obtain financing to build a Caribbean resort. Chang was told that if the financing did not close within 90 days, his deposit would be refunded. In February 2010, Chang wired $750,000 to the OPT Escrow Account, believing OPT Title would hold the money in escrow. But once Chang's funds were deposited in the OPT Escrow Account, Gordon immediately transferred them to another account with the Bank where they were commingled with other funds. Believing that his money was still in the OPT Escrow Account, when the loan failed to close within 90 days, Chang agreed to extend the escrow period.

Several escrow extensions later, and more than two years after Chang initially transferred the money to the OPT Escrow Account, the Bank was asked whether OPT Title had enough money in its accounts to cover the $750,000 owed to Chang and whether there was a lis pendens on the OPT Escrow Account. The Bank responded that there was no lis pendens on the account but failed to address whether the balance in OPT Title's accounts was sufficient to cover the amount owed to Chang.³

Subsequently, Gordon's fraud was uncovered. He was indicted on a federal wire-fraud charge and pled guilty. To date, Chang has not recovered his $750,000.

B. Chang's Claims Against the Bank

Chang filed this lawsuit against the Bank in federal district court based on diversity jurisdiction. He amended his complaint once as a matter of right. Before the Bank responded to Chang's First Amended Complaint, the district court entered an order setting the case for trial and requiring the parties to complete discovery 70 days prior to trial.

1. Chang's Proposed Second Amended Complaint

The Bank then moved to dismiss the First Amended Complaint with prejudice for failure to state a claim. Chang opposed the motion to dismiss and also filed a motion seeking leave to file a Second Amended Complaint. In the proposed Second Amended Complaint, Chang set forth additional allegations that a Bank employee had assisted Gordon in the fraud. Chang alleged that Olga Padgett–Perdomo, the Bank's vice president who prepared the paperwork to open OPT Title's accounts, permitted Gordon to name the OPT Escrow Account as an escrow account even though OPT Title had not complied with the Bank's procedures for opening an escrow account. Chang alleged that several months after opening the account, Padgett–Perdomo wrote a letter on the Bank's letterhead (the “Seven-digit Letter”) representing that OPT Title's “[e]scrow account” had “deposits in a business checking and savings account in the seven digit amounts” when in fact the total balance in all OPT Title's accounts with the Bank at that time was less than $100,000. Second Am. Compl. at ¶ 35 (Doc. 29–1).⁴

Chang's allegations also suggested Gordon paid off Padgett–Perdomo for supporting his fraudulent acts. Chang alleged that Gordon told an associate that he had loaned a Bank employee $100,000 and that Gordon paid Padgett–Perdomo $100,000 several months after she opened OPT Title's accounts. Gordon did not pay Padgett–Perdomo directly; instead, OPT Title transferred $100,000 from an account with the Bank to the bank account of an entity Padgett–Perdomo controlled.

In his proposed Second Amended Complaint, Chang asserted causes of action against the Bank for negligence, gross negligence, aiding and abetting fraud, and aiding and abetting conversion. The Bank opposed Chang's motion for leave to file a Second Amended Complaint, arguing that the allegations were insufficient to establish that the Bank or Padgett–Perdomo knew about the fraudulent scheme or provided substantial assistance to Gordon.

While the motions to dismiss and for leave to amend were pending, Chang zealously pursued discovery. After the parties had engaged in substantial discovery, the district court granted the Bank's motion to dismiss, dismissing the First Amended Complaint with prejudice; denied as futile Chang's motion for leave to file the proposed Second Amended Complaint; and instructed the clerk of court to close the case. As to the proposed Second Amended Complaint, the court concluded that Chang failed to state a claim for any of the causes of action because his allegations were insufficient to show that the Bank or Padgett–Perdomo knew about Gordon's fraud or that they had substantially assisted the fraud. Even though the court credited Chang's allegations that Gordon illicitly loaned Padgett–Perdomo $100,000, it concluded that Chang “fail [ed] to allege any connection between the secret loan and Gordon's misappropriation, for example, an illicit quid pro quo arrangement whereby Gordon secretly loaned the employee money in exchange for her concealing his fraud.” Chang v. JPMorgan Chase Bank, N.A. , No. 14–cv–20368, 2014 WL 7564668, at *11 (S.D. Fla. Dec. 8, 2014).

2. Chang's Rule 59(e) Motion and Proposed New Allegations

Chang filed a motion under Federal Rule of Civil Procedure 59(e) asking the district court to reconsider its decision and alter or amend its order dismissing his claims with prejudice and denying him leave to amend his complaint. In his motion, Chang set forth additional allegations based on facts he learned through discovery to support his contentions that (1) Padgett–Perdomo knew that OPT Title was supposed to be holding Chang's money in escrow; (2) Padgett–Perdomo assisted Gordon in the fraudulent scheme; and (3) Gordon paid Padgett–Perdomo $100,000 in exchange for her assistance. Below we address how Chang's new allegations support each of these inferences.

a. Allegations That Padgett–Perdomo Knew that OPT Title Agreed to Hold Chang's Money in Escrow

First, Chang's allegations support an inference that Padgett–Perdomo knew OPT Title was supposed to be holding Chang's money in escrow even before Chang transferred the money. He alleged that a week before he wired money to OPT Title, Padgett–Perdomo met with Chris Lim and William Lin, who were conducting due diligence, at her office at the Bank. At the meeting, Padgett–Perdomo assured them that OPT Title had an excellent relationship with the Bank. Lim and Lin showed Padgett–Perdomo a copy of the escrow agreement...