In re Meridian Asset Management, Inc.

• Decision Date: 25 June 2003
• Docket Number: Adversary No. 02-90036.,Bankruptcy No. 00-90029 TLH-4.
• Citation: 296 B.R. 243
• Parties: In re MERIDIAN ASSET MANAGEMENT, INC., Debtor. Securities Investor Protection Corporation, and Securities Investor Protection Corporation, as Trustee of the Estate of Meridian Asset Management, Inc., Plaintiff, v. Capital City Bank and Capital City Bank, f/k/a Industrial National Bank, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Florida

296 B.R. 243

In re MERIDIAN ASSET MANAGEMENT, INC., Debtor Securities Investor Protection Corporation, and Securities Investor Protection Corporation, as Trustee of the Estate of Meridian Asset Management, Inc., Plaintiff, v. Capital City Bank and Capital City Bank, f/k/a Industrial National Bank, Defendant.

Bankruptcy No. 00-90029 TLH-4.

Adversary No. 02-90036.

United States Bankruptcy Court, N.D. Florida, Tallahassee Division.

June 25, 2003.

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C. Edwin Rude, Jr., Esq., Tallahassee, FL, for Plaintiff.

Kenneth Hart, Esq., Tallahassee, FL, for Defendant.

ORDER GRANTING DEFENDANT CAPITAL CITY BANK'S MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT

LEWIS M. KILLIAN, Jr., Bankruptcy Judge.

THIS CASE came before this Court on the Defendant Capital City Bank f/k/a Industrial National Bank's Motion to Dismiss Plaintiff Securities Investor Protection Corporation's (SIPC) First Amended Complaint. For the reasons discussed below Capital City Bank's Motion to Dismiss will be GRANTED. This Court has Jurisdiction over this adversary proceeding pursuant to § 78eee(b)(4) of the Securities Investor Protection Act (SIPA), 15 U.S.C. § 78aaa, et seq. This is not a core proceeding. Venue is founded upon 28 U.S.C. § 1409 in that this proceeding arises in or is related to the Meridian liquidation proceeding, Adversary No. 00-90029, initiated by an application for protective decree filed by SIPC, in the United States District Court for the Northern District of Florida pursuant to 15 U.S.C. § 78eee(b)(1).

FACTS

Meridian was a financial services company offering brokerage and investment advice, which together with its principal officer, Robin McEachin (McEachin), falsely promised to invest and to oversee the investment of monies, funds, and credits belonging to and in the care of numerous clients. Meridian together with McEachin, maintained five checking accounts at Capital City Bank (Bank). The names of the five investor bank accounts were: (1) the Woodruff Trucking Pension Plan and Trust account; (2) the Woodruff Trucking Retirement Account; (3) Meridian Asset Management Customer Trust Account; (4) the Meridian Asset Management business account; and (5) the Meridian Asset Management, Inc. fbo Florida Police Benevolent Association account. Meridian, together with McEachin, promised its victim investors that their funds would be invested in mutual funds, retirement accounts, or other investment accounts. In fact, none of the monies were invested. From 1991 to 2000, Meridian, together with McEachin, embezzled Meridian investor funds held in the five accounts. Once the victim's funds were deposited in one of the five accounts, Meridian, together with McEachin, would use the funds in the accounts to pay operating expenses for McEachin's businesses, McEachin's personal expenses, and to pay other victim investors. For example, when money was due to one client, McEachin would take monies from another investor's account and disburse it, thereby promoting and concealing the fraud. McEachin was convicted of various federal offenses.

On August 1, 2000, the United States District Court found that the customers of Meridian were in need of the protection afforded by the Securities Investor Protection Act (SIPA). The Court's Order appointed the Securities Investment Protection Corporation (SIPC) as Trustee to liquidate Meridian and removed the liquidation to the United States Bankruptcy Court for the Northern District of Florida, Tallahassee Division.

SIPC, on its own behalf and as subrogee and assignee with respect to customer claims, and as the Trustee, on behalf of the estate of Meridian, and as bailee of customer property brings claims for: (1) negligence and gross negligence; (2) recoupment of the proceeds of fiduciary items; (3) breach of fiduciary duty to certain Meridian customers; (4) aiding and abetting the breach of fiduciary duties owed by others to Meridian; (5) conversion; (6) breaches of covenants of good faith and failure to Exercise Ordinary care; and (7) breach of warranty.

During the pendency of this adversary proceeding, the Bank filed its Motion to Dismiss the Plaintiff's First Amended Complaint. Therein, the Bank argues that this Bankruptcy Court does not have jurisdiction over this case because SIPC as Trustee lacks standing and has failed to state a claim. In particular, that the Complaint should be dismissed because: (1) the Complaint is so vague and incomprehensible that it violates Federal Rules of Civil Procedure 8(a) and 10(b), and Bankruptcy Rules 7008 and 7010 in that it does not include a short plain statement of each claim showing how the Plaintiff, in its various capacities, is entitle to relief; (2) SIPC as Trustee lacks standing to bring the present suit; (3) none of the seven counts of the Complaint state a claim upon which relief can be granted; (4) the Plaintiff failed to join two indispensable parties (Woodruff Trucking, Inc. Money Purchase Plan Trust, and the Florida Police Benevolent Association Money Purchase Pension Plan & Trust) and without this joinder, the rights of these Private Trusts will be determined without their participation as well as the fact that the Bank could be subject to double liability; and (5) the economic loss rule bars the Plaintiff's claims for negligence, recoupment, breach of fiduciary duty, aiding and abetting breach of fiduciary duty and conversion when brought by SIPC as Trustee and representative of Meridian. Additionally, the Bank filed subsidiary motions, a Motion for More Definite Statement and a Motion to Compel Separation of Claims. Following these, SIPC entered its response to the Bank's Motion to Dismiss on February 18, 2003. The motion was heard on March 11, 2003.

DISCUSSION

In ruling on a motion to dismiss a court must accept the allegations of the complaint as true and construe facts in the light most favorable to the plaintiff. Sec. and Exch. Comm. v. Lambert, 38 F.Supp.2d 1348, 1350 (S.D.Fla.1999) (citing Hishon v. King & Spalding, 467 U.S. 69, 73 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)). Further, a complaint should not be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim "unless it appears beyond doubt that plaintiff can prove no set of facts that would entitle him to relief." Id. (citing Bradberry v. Pinellas County, 789 F.2d 1513, 1515 (11th Cir.1986) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957))). Similarly, a court will only grant a motion to dismiss when it is clear that no set of alleged facts will provide a basis of relief for the movant. Id.

In this adversary proceeding, SIPC, as stated in its Response, has brought its seven Count Amended Complaint in two basic capacities: (1) as Trustee of the Meridian Bankruptcy Estate, standing in the shoes of Meridian (which includes Meridian's status as bailee of its customer's property); and (2) as itself on its own behalf to recover funds it has previously advanced to the defrauded Meridian investors (Docket # 20 pg.1). In the second capacity, SIPC brings claims as assignee of customer claims and as statutory subrogee of Meridian's customer claims paid by SIPC. The Bank argues that the Complaint violates Bankruptcy Rules 7008 and 7010 in that the Complaint is vague, confusing, and cannot be understood because it fails to show how SIPC in its various capacities is entitled to relief, and combines claims within the same Count.

Bankruptcy Rule 7008 adopts the general rules of pleading as stated in Rule 8 of the Federal Rules of Civil Procedure. To comply with this Rule, the complaint must state a "short plain statement of the claim" that "will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." O'Halloran v. First Union Nat'l Bank of Florida, 205 F.Supp.2d 1296, 1299 (M.D.Fla.2002) (citing Conley v. Gibson, 355, U.S. 41, 47, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)) also see Bankruptcy Rule 7008 stating a claim for relief shall contain "a short and plain statement of the claim showing that the pleader is entitled to relief". Although SIPC's complaint is somewhat vague in that it overlaps what claims are asserted in each of the various capacities, SIPC has alleged sufficient facts that put the Bank on fair notice of the claims and grounds against it. Evidencing this is the fact that the Bank was able to prepare, as part of its response at the hearing, an elaborate chart of the Counts, the capacities of SIPC in relation to these Counts and asserted defenses. "To comply with fair notice, a complaint should at least allege in general terms the acts, customs, practices, policies of the defendant in a manner sufficient to allow an informed response." Id. (quoting Desai v. Tire Kingdom, Inc., 944 F.Supp. 876, 879 (M.D.Fla.1996) (citing Cummings v. Palm Beach County, 642 F.Supp. 248, 249 (S.D.Fla.1986))). Therefore, because the Complaint was sufficiently plead to put the Bank on fair notice of the claims against it, the Bank's Motion to Dismiss pursuant to Bankruptcy Rules 7008 and 7010 are denied.

Next, the Bank argues that SIPC, as Trustee and representative of Meridian, on behalf of Meridian, lacks standing to bring the present suit.

Litigants in federal court must have standing in order to be able to bring a claim. Fed. Deposit Ins. Corp. v. Morley, 867 F.2d 1381, 1386 (11th Cir.1989) (citing Valley Forge Christian College v. Am. United for Separation of Church and State, 454 U.S. 464, 471, 102 S.Ct. 752, 757, 70 L.Ed.2d 700, 708; Saladin v. Milledgeville, 812 F.2d 687, 690 (11th Cir.1987)). A party who wishes to bring a complaint must satisfy a two-part standing test consisting of a constitutional component and prudential considerations. Id. at 1386 (Valley Forge Christian College, 454 U.S. at 472, 102 S.Ct. at 758, 70 L.Ed.2d at 709; Saladin, at 690). To fulfill the constitutional...