FDIC v. First Interstate Bank of Denver , NA, Civil Action No. 93-B-85.

• Decision Date: 10 July 1996
• Docket Number: Civil Action No. 93-B-85.
• Citation: 937 F. Supp. 1461
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Jefferson Bank & Trust, Plaintiff, v. FIRST INTERSTATE BANK OF DENVER, N.A., Refco Group, Ltd., Refco, Inc.; Refco Capital Corporation; Refco Securities, Inc.; Kimberly Goodman; and Security Pacific National Trust Company (NY), Defendants.
• Court: U.S. District Court — District of Colorado

937 F. Supp. 1461

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Jefferson Bank & Trust, Plaintiff, v. FIRST INTERSTATE BANK OF DENVER, N.A., Refco Group, Ltd., Refco, Inc.; Refco Capital Corporation; Refco Securities, Inc.; Kimberly Goodman; and Security Pacific National Trust Company (NY), Defendants.

Civil Action No. 93-B-85.

United States District Court, D. Colorado.

July 10, 1996.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Craig B. Shaffer, S. Kirk Ingebretsen, Peggy Anderson, Terry Jo Epstein, Dufford & Brown, Denver, CO, for plaintiff.

Frederick J. Baumann, Samuel Ventola, Rothgerber, Appel, Powers & Johnson, Denver, CO, Joseph K. Brenner, Mark D. Cahn, Thomas Mueller, Richard Sigel, Wilmer, Cutler & Pickering, Washington, DC, for Defendant First Interstate Bank of Denver, N.A.

Edward W. Stern, Parcel, Mauro, Hultin & Spaanstra, P.C., Denver, CO, Jack Weinberg, Scott E. Hershman, Marianne Bretton-Granatoor, Therese M. Doherty, Ronnie L. Silverberg, Graubard Mollen Horowitz Pomeranz & Shapiro, New York City, for Defendants Refco Group, Ltd.; Refco, Inc.; Refco Capital Corporation and Refco Securities, Inc.

Robert T. McAllister, Kathryn Meyer, McAllister & Murphy, P.C., Denver, CO, Paul M. Reitler, James L. Sanders, Beverly A. Johnson, Sheppard, Mullin, Richter & Hampton, Los Angeles, CA, for Defendant Security Pacific National Trust Company NY.

Kimberly Goodman, Grand Island, NY.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

Defendants, First Interstate Bank of Denver, N.A. (FIB or First Interstate) and Refco Group, Ltd. (RGL), Refco, Inc. (RI), Refco Capital Corporation (RCC), Refco Securities, Inc. (RSI) (collectively, REFCO) have moved for dismissal of various claims of plaintiff, the Federal Deposit Insurance Corporation (FDIC), as receiver for Jefferson Bank & Trust (JBT or Jefferson Bank). On March 28, 1996, pursuant to a joint motion, I entered an order dismissing with prejudice all of FDIC's claims against First Interstate. Accordingly, all pending motions filed by First Interstate or by another party against First Interstate are moot. Also, FDIC moves to strike designation of non-party liability by REFCO. I will deny REFCO's motion to dismiss in its entirety and grant FDIC's motion to strike.

I.

JBT filed its original complaint and first amended complaint (complaint) in state court. On January 14, 1993, this case was removed here pursuant to 28 U.S.C.A. § 1441. Removal was based on this court's original jurisdiction over plaintiff's federal racketeering and securities claims, the eighteenth, nineteenth and twenty-fourth claims for relief, pursuant to 28 U.S.C.A. § 1331, and supplemental jurisdiction over the remaining claims pursuant to 28 U.S.C.A. § 1367. On July 2, 1993, the FDIC was appointed receiver for JBT.

The third amended complaint alleges with specificity the existence of a fraudulent scheme among the defendants, their employees, and Steven D. Wymer (Wymer). The alleged object of the scheme was to commit racketeering acts against Wymer's former clients, including Jefferson Bank, principally through actions constituting violations of federal mail fraud, wire fraud, and bank fraud statutes. The third amended complaint sets forth seventeen claims for relief arising from defendants' part in an alleged fraudulent scheme that resulted in the diversion of more than $40 million of Jefferson Bank's funds. These circumstances have been a prolific source of litigation here and in the Tenth Circuit. See Lyons v. Jefferson Bank & Trust, 994 F.2d 716 (10th Cir.1993); Lyons v. Jefferson Bank & Trust, 793 F.Supp. 989 (D.Colo.1992); Lyons v. Jefferson Bank & Trust, 793 F.Supp. 981 (D.Colo.1992); Lyons v. Jefferson Bank & Trust, 781 F.Supp. 1525 (D.Colo.1992). Wymer is now, and will be for some time, in the custody of the United States Government.

II.

Choice of law

REFCO moves to dismiss claims one, two and four based on the Colorado Organized Crime Control Act, section 18-17-101 et seq., C.R.S. (COCCA) and the Colorado Securities Act, sections 11-51-125(3) and 11-51-604(4), C.R.S. (CSA). Defendants cite a New York choice of law provision in a RSI customer agreement signed by JBT. (3d Amended Complaint ¶ 11; Weinberg declaration, Exh. A). It is undisputed that RSI never signed the agreement. Thus, FDIC contends there is no choice of law agreement. REFCO asserts that because in the past the FDIC has relied on various provisions of the agreement, it is now estopped from asserting there was no contract.

Interpretation of a written contract is generally a question of law for the court. Luna v. City and County of Denver, 718 F.Supp. 854, 857 (D.Colo.1989); Pepcol Mfg. Co. v. Denver Union Corp., 687 P.2d 1310 (Colo.1984). Where, as here, the existence of a contract is disputed and there is conflicting evidence, it is for the jury to decide whether a contract, in fact, exists. Luna, 718 F.Supp. at 857 citing I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882 (Colo.1986). See also Bowne of New York, Inc. v. International 800 Telecom Corp., 178 A.D.2d 138, 576 N.Y.S.2d 573 (1991). A definitive choice of law determination is inappropriate and premature at this Rule 12 phase of the case.

III.

REFCO's motion to dismiss

A. Motion to dismiss for lack of personal jurisdiction

Refco Capital Corporation (RCC), Refco Group, Ltd. (RGL), and Refco, Inc. (RI) move to dismiss this action against them for lack of personal jurisdiction pursuant to Fed. R.Civ.P. 12(b)(2).

A plaintiff bears the burden of establishing personal jurisdiction over a defendant. Behagen v. Amateur Basketball Ass'n of the U.S.A., 744 F.2d 731, 733 (10th Cir. 1984), cert. denied, 471 U.S. 1010, 105 S.Ct. 1879, 85 L.Ed.2d 171 (1985). Prior to trial, a plaintiff need only make a prima facie showing of jurisdiction based on affidavits and other written materials. The allegations of the complaint must be taken as true if they are uncontroverted by the defendant's affidavits. If there are conflicting affidavits, all factual disputes are resolved in plaintiff's favor. Id.; GCI 1985-1 LTD. v. Murray Properties Partnership of Dallas, 770 F.Supp. 585, 587 (D.Colo.1991).

1. Alter-ego/piercing corporate veil

FDIC seeks to hold RGL, RI, RSI, and RCC liable for each other's acts alleging that these entities are instrumentalities and alter-egos of each other. FDIC has met its requisite jurisdictional burden under the alter-ego doctrine.

The acts of a subsidiary corporation are not automatically attributable to the parent without the requisite showing of corporate control, even if the parent is the sole owner of the subsidiary. United Elec. Radio and Mach. Workers of America v. 163 Pleasant Street, Corp., 960 F.2d 1080, 1084 (1st Cir.1992); see also Sears, Roebuck and Co. v. Sears plc, 752 F.Supp. 1223, 1225 (D.Del. 1990). A presumption of corporate separateness exists that is overcome only by clear evidence that the parent in fact controls the subsidiary. United Elec. Workers, 960 F.2d at 1091. However, "if it is shown that the parent corporation used the corporate entity to perpetuate a fraud or wrong on another, equity will permit plaintiff to pierce the corporate veil." Skidmore, Owings & Merrill v. Canada Life Assur. Co., 706 F.Supp. 758 (D.Colo.1989) citing Micciche v. Billings, 727 P.2d 367 (Colo.1986). To pierce the corporate veil, evidence must show that the corporate entity "was used to defeat public convenience, or to justify or protect wrong, fraud or crime." Boughton v. Cotter Corp., 65 F.3d 823, 836 (10th Cir.1995).

FDIC alleges the following. RGL, a Delaware corporation with its principal place of business in Illinois, owns and/or controls the activities of RI, RCC, and RSI. C/O ¶ 2(g). Also, the REFCO defendants share many of the same officers and directors. C/O ¶ 4a; Exh. F, G, and H. REFCO entities do not observe corporate formalities of shareholder or board meetings. Exh. K pp. 232-34, 301-04. The REFCO entities transfer at their discretion and without notice, between accounts maintained at those affiliates, money, securities, commodities, and other property belonging to other REFCO entities. C/O ¶ 4a; Exh. I. Phillip Bennett, as CFO of RGL and president of RCC sets the compensation for senior management at RSI. Exh. J. pp. 309-10. Bennett, who does not hold any management position with RSI, has the authority to suspend trading in any client account at RSI. C/O ¶ 4d. He also approved Wymer's request that defendant Kimberly Goodman, alleged to be a central participant in the scheme and beneficiary of Wymer's largesse, be RSI's account executive on Wymer's Denman/ITM accounts and regularly reviewed and approved line of credit requests of RSI customers. Id.

RCC had a policy of not releasing or transferring funds from customer accounts without first confirming that RSI had neither need for nor claim upon the funds. RCC also regularly provided to RSI employees monthly account statements for Wymer's firms, Denman/ITM, and RCC, without customer knowledge or approval. Id. On February 9, 1990, Bennett, president of RCC and CFO of RGL, approved a credit line request of JBT submitted to RSI on the express condition that "money is always in the Refco Capital account when positions are on." Id. Also, FDIC alleges that JBT's account at RCC played a pivotal role in the scheme and was a primary vehicle for Wymer's and REFCO's diversion of JBT's funds.

Under these well pleaded and supported allegations, plaintiff may seek to pierce the corporate veil and hold RGL, RI, RSI, and RCC liable for each other's debts and obligations. Importantly, FDIC's alter-ego doctrine bears upon the following jurisdictional and substantive motion analysis because the actions of every REFCO entity may be considered the acts of all REFCO entities.

2. Long-arm Jurisdiction

Jurisdiction in this court over a nonresident defendant in a diversity action is determined by the law of the forum...