Bachmeier v. Bank of Ravenswood

• Decision Date: 12 January 1987
• Docket Number: No. 86 C 4433.,86 C 4433.
• Citation: 663 F. Supp. 1207
• Parties: Jacob and Barbara BACHMEIER, et al., Plaintiffs, v. BANK OF RAVENSWOOD and Felix Bachmeier, Defendants.
• Court: U.S. District Court — Northern District of Illinois

663 F. Supp. 1207

Jacob and Barbara BACHMEIER, et al., Plaintiffs, v. BANK OF RAVENSWOOD and Felix Bachmeier, Defendants.

No. 86 C 4433.

United States District Court, N.D. Illinois, E.D.

January 12, 1987.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John A. Dienner, III, Chicago, Ill., for plaintiffs.

Joseph G. Bisceglia, David Bieber, Jenner & Block, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

Plaintiffs bring this action pursuant to § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968. They also allege pendent state law claims for negligence and negligent misrepresentation, conversion, and breach of fiduciary duty and implied covenants of good faith and fair dealing. Defendant Bank of Ravenswood ("Bank") has moved to dismiss all counts. Defendant Felix Bachmeier ("Felix"), who is presently incarcerated for his complicity in the acts underlying the complaint, is not yet before the court on any pleading.¹

FACTS

The complaint alleges the following facts: The Bank is a federally insured, state-chartered banking institution holding itself out to the public as a conservative investment advisor and manager of its customers' funds. During the relevant period here, approximately between 1981 and 1984, Felix was a vice-president in the Bank's trust department. He was also a director of Enico Oil Company, Inc. ("Enico"), a fly-by-night Texas oil and gas concern which is now bankrupt. ¶ 13. The complaint alleges that the Bank also had an interest in Enico. ¶¶ 70, 76-78. See text infra at nn. 8-9.

Acting together and in bad faith, Felix and the Bank contrived a scheme to defraud the plaintiffs, each of whom was a customer and depositor at the Bank. ¶¶ 2-7, 11, 69, 70. Although diverging somewhat among plaintiffs, the basic plot involved Felix's suggestions to the plaintiffs that they transfer their conservatively invested savings into higher yield interest accounts or certificates of deposit ("CDs") at the Bank. Once authorized to make the transfer, Felix placed the funds into another account at the Bank over which he had signatory authority. The money was then used, without informing the plaintiffs of the nature of the investment, to purchase short-term Enico notes. ¶¶ 21-62. None of the plaintiffs were ever apprised of Enico's perilous financial condition or of Felix's position or the Bank's interest in Enico. ¶¶ 12, 15.

With the exception of Monica Ternes, who was given an Enico note contemporaneously with her withdrawal of savings, ¶ 45, none of the plaintiffs received documentation of these transactions until the end of 1983. At that time, they were sent notes reflecting the investments that defendants had made for them in Enico. ¶¶ 24, 30, 38, 54, 60. Even after they received the notes, some of the plaintiffs continued to believe their investments were with the Bank or a subsidiary thereof. They claim to have first discovered the true nature of the fraud in 1984. ¶¶ 32 (Josef and Paulina), 40 (Otto and Elfrieda), 47 (Monica). Others realized that their funds were invested in Enico, but were told by Felix that their money was safe. ¶¶ 24 (Jacob and Barbara), 54 (Emanuel and Erica), 60 (Klara). Together, the plaintiffs lost approximately $123,500 as a result of defendants' plot.

Discussion of Legal Issues

In ruling on a motion for dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the court must presume all of the well-pleaded allegations of the complaint to be true. Miree v. DeKalb County, Georgia, 433 U.S. 25, 27 n. 2, 97 S.Ct. 2490, 2492 n. 2, 53 L.Ed.2d 557 (1977). Dismissal is proper only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Haines v. Kerner, 404 U.S. 519, 520-21, 92 S.Ct. 594, 596, 30 L.Ed.2d 652 (1972), quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).

While complaints are to be liberally construed, legal conclusions or opinions couched as factual allegations are not given a presumption of truthfulness. Briscoe v. LaHue, 663 F.2d 713, 723 (7th Cir.1981), aff'd, 460 U.S. 325, 103 S.Ct. 1108, 75 L.Ed.2d 96 (1983). In addition, where an affirmative defense or other bar to relief is apparent from the face of the complaint, dismissal is proper. See 2 A Moore's Federal Practice ¶ 12.10. On the other hand, if there is a disputed factual issue underlying the defense, the motion must be denied. Id.

With these principles in mind, I turn to the Bank's arguments.

I. The Securities Fraud Claims

A. Statute of Limitations Issues

The Bank asserts that this action is barred by the three year statute of limitations which this court must borrow from Illinois blue sky law. See Cahill v. Ernst & Ernst, 625 F.2d 151, 153 (7th Cir.1980). The plaintiffs concede that the three year period generally applies to § 10(b) claims brought in Illinois, but argue that the special circumstances of their case equitably toll the statute. In response, the Bank contends that the plaintiffs were "on notice" of facts which should have led them to investigate and discover the fraud within the limitations period.

In Tomera v. Galt, 511 F.2d 504 (7th Cir.1975), the Court of Appeals spoke to this issue. There, the Court observed that

At least two types of fraudulent behavior toll a statutory period. Bailey v. Glover, 21 88 U.S. Wall 342, 22 L.Ed. 636 (1875). In the first type, the most common, the fraud goes undiscovered even though the defendant after commission of the wrong does nothing to conceal it and the plaintiff has diligently inquired into its circumstances. The plaintiff's due diligence is essential here.... In the second type, the fraud goes undiscovered because the defendant has taken positive steps after commission of the fraud to keep it concealed.... This type of fraudulent concealment tolls the limitations period until actual discovery by the plaintiff.

Id. at 510; see also Suslick v. Rothchild Securities Corp., 741 F.2d 1000, 1004 (7th Cir.1984) (following Tomera rule). The Court held that it was the plaintiff's burden to plead facts of fraudulent behavior which would toll the statute, finding the following language sufficient to plead fraudulent concealment, the second category of fraud:

During the period commencing on or about January 1, 1968 and continuing to the present, the defendants herein engaged in a continuing scheme and artifice to defraud investors, including plaintiffs, in connection with the purchase, solicitation, offer and sale of the unregistered securities....

Id. at 509-510.

Although plaintiffs here also plead fraudulent concealment,² their assertion is similar in its conclusory nature to the language disapproved of by the Court of Appeals in Briscoe, 663 F.2d at 723.³ Unlike Tomera, where the plaintiff alleged a continuing scheme to defraud investors, here, at least with respect to some of the plaintiffs, there is no suggestion in the complaint that defendants took positive action to conceal their original misrepresentations and omissions. For these plaintiffs, due diligence becomes the dispositive issue in the statute of limitations question before the court. As the Tomera Court stated, "if the plaintiff bestirs himself to inquire, he has ample time to investigate and bring his action. If both parties rest on their oars, the statute runs its regular course." Tomera, 511 F.2d at 510, quoting Smith v. Blachley, 198 Pa. 173, 47 A. 985 (1901).

Plaintiffs correctly note that due diligence and the reasonableness of efforts expended to discover fraud are generally inappropriate issues for resolution on a motion to dismiss. But as I noted above, where the facts plead in the complaint are not susceptible of conflicting inferences, the court may conclude the issue as a matter of law. This principle is well illustrated by the Court of Appeals opinion in Hupp v. Gray, 500 F.2d 993 (7th Cir.1974). There, the plaintiff alleged that he made stock purchases as a result of misrepresentations regarding the company whose stock he bought and the defendant's claims that the stock's value would rise significantly "at an early date." Soon after purchase, the price collapsed. Although the representations on which the plaintiff sued were not actually discovered to be false until three years later, the Court of Appeals held that "even a wholly unsophisticated investor should have realized" that something was amiss when the price dropped. 500 F.2d at 996. At the least, the Court noted, "these circumstances should have aroused suspicion or curiosity on the part of plaintiff." 500 F.2d at 996-97, quoting Morgan v. Koch, 419 F.2d 993, 998 (7th Cir.1969). Accordingly, the Court refused to equitably toll the statute and action was held to be barred.

The plaintiffs' contention here that due diligence "is not an issue at all" due to the alleged existence of a fiduciary relationship between plaintiffs and defendants was also addressed by the Hupp court. Indeed, the Court held specifically that such a relationship was not sufficient to toll the statute:

While the existence of a fiduciary relationship is, no doubt, one factor which a court should consider in determining whether a plaintiff has exercised due diligence, a mere allegation that such a relationship existed is alone not necessarily determinative. A court should also consider other factors, including the nature of the fraud alleged, the opportunity to discover the fraud, and the subsequent actions of the defendant.

Hupp, 500 F.2d at 997. In light of this holding, the Illinois cases cited by plaintiffs are to no avail, as federal common law determines the circumstances which will equitably toll a federally-borrowed state statute of limitations. Tomera, 511 F.2d at 509; Suslick, 741 F.2d at 1004.

With these principles in mind, I turn to the claims...