Marshall v. Nat'l Bank of Middlebury

• Decision Date: 03 December 2021
• Docket Number: Civil Action 5:19-cv-246
• Parties: Bruce Marshall and Jeanine Weir, Plaintiffs, v. National Bank of Middlebury, Defendant.
• Court: U.S. District Court — District of Vermont

Bruce Marshall and Jeanine Weir, Plaintiffs, v. National Bank of Middlebury, Defendant.

Civil Action No. 5:19-cv-246

United States District Court, D. Vermont

December 3, 2021

REPORT AND RECOMMENDATION (DOC. 36)

Kevin J. Doyle United States Magistrate Judge

Plaintiffs Bruce Marshall and Jeanine Weir, appearing pro se have filed this action against Defendant National Bank of Middlebury (NBM) for losses they sustained after Marshall invested approximately $200, 000 with Larry and Karen Bassett, who were customers of NBM. In their Third Amended Complaint (TAC), Plaintiffs describe a Ponzi scheme in which Larry Bassett accepted over a million dollars from friends and relations and lost it all through daytrading. (See Doc. 30.) Plaintiffs claim NBM improperly overlooked the Bassetts' obviously suspicious transactions and fraudulent financial activity, resulting in great financial loss and emotional damage to Plaintiffs. (Id.) Plaintiffs seek $9, 000, 000 from NBM, as well as “full discovery” and “whatever other relief the Court deems just [and] equitable.” (Id. at 187, ¶ 5.)

Before filing this lawsuit, Plaintiffs filed a separate action against the Bassetts themselves, but that action has been stayed due to the Bassetts' bankruptcy filing in the Eastern District of Texas on February 12, 2019. See Marshall v. Bassett, No. 5:18-cv-196-gwc (D. Vt. Nov 19, 2018), ECF No. 26 (Feb. 21, 2019).

Pending before the Court is NBM's Motion to Dismiss Plaintiffs' Third Amended Complaint (Doc. 36). For the reasons explained below, I recommend that the Court grant the Motion in its entirety and dismiss this lawsuit.

Factual and Procedural Background

Both the Court and the parties have summarized the background facts and procedural history in this case on numerous occasions. (See, e.g., Docs. 1, 5, 27, 31, 36, 46 50.) The facts discussed below are primarily taken from Plaintiffs' TAC (Doc. 30), and are accepted as true for purposes of ruling on the pending Motion to Dismiss Third Amended Complaint (Doc. 36). See Ashcroft v. Iqbal 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v Twombly, 550 U.S. 544, 570 (2007)).

I. Relevant Facts

In September 2014, at a time when Weir was suffering from Lyme disease and Marshall was her full-time caregiver, Marshall began investing with Larry Bassett (Bassett), a certified public accountant. (Doc. 30 at 8-10.) Bassett assured Plaintiffs that he was “very conservative” in his investment approach and that he “d[id] well even in and especially in unstable and fluctuating market conditions.” (Id. at 9, ¶ 15.) Upon receiving positive monthly earning reports and IRS 1099 INT reports, Marshall believed his initial investment of $10, 000 with Bassett was “safe, ” and thus continued to provide funds to Bassett over the next approximately two years, ultimately totaling $197, 000. (Id. at 10, ¶ 17.) During that period, Bassett never mentioned anything to Marshall about having “any struggles with trading.” (Id. at 21, ¶ 39.) Plaintiffs received their last monthly earning report from Bassett in November 2016 (id. at 10, ¶ 19); and in February 2017, Bassett informed Plaintiffs that he “had lost all of the investors['] money, ” totaling over $1.2 million (id. at 11, ¶ 20). Bassett explained that he had given Marshall and other investors false monthly earning reports and false IRS 1099 INT forms, and had reported earnings to investors while he was in fact losing in trading. (Id. at 14, ¶ 27; id. at 34.) Plaintiffs were shocked and devastated. (Id. at 11, ¶ 21.)

The Bassetts told Plaintiffs they were committed to repaying them and other investors. (Id. ¶ 22.) Though the Bassetts stated they had no assets, they advised that they would sell their Vermont home, move in with family in Texas, and work full-time jobs in order to earn money to pay back the lost funds. (Id. at 11-12, ¶ 22.) The Bassetts estimated that it would take five or more years to repay the debt. (Id. at 12, ¶ 23.) In fact, the Bassetts' representation that they had no assets was not true; they had intentionally misrepresented their financial situation in an effort to prevent Plaintiffs and other investors from taking timely legal action against them. (Id. at 12, ¶ 22; id. at 31, ¶ 60.)

In March 2017, Bassett sent Plaintiffs a Promissory Note in favor of Marshall in the amount of $238, 198. (Id. at 16, ¶ 32; see id. at 141, ¶ 36 (referencing “two promissory notes, ” “one emailed and one signed and postal mailed”).) In May 2017, however, Bassett told Marshall that Bassett and his wife had only $133, 000 and that he had lied about the equity they had in their Cornwall, Vermont house. (Id. at 23, ¶ 43.) Marshall placed liens against the Cornwall house in the amount of $197, 000, the total amount he had invested with Bassett. (Id.) On May 15, 2017, the liens were released due to a “contractual Agreement” between the Bassetts and Plaintiffs, in which the Bassetts agreed to repay all funds owed Marshall, to give “full financial disclosure” to Plaintiffs regarding the sale of the Bassetts' Cornwall house, and to use an escrow service for the house sale and all future payments to investors. (Id. at 24, ¶ 48.) The Bassetts' house was sold (id. at 23, ¶ 43), and the mortgage company gave Marshall a check for $27, 000 as partial payment towards his lost investment (id. at 24, ¶ 48). That $27, 000 check constitutes the only funds the Bassetts have paid to Plaintiffs against their outstanding $197, 000 debt. (Id. at 44, ¶ 96.) The Bassetts then moved to Texas, where they filed for bankruptcy approximately two years later. See Marshall, No. 5:18-cv-196-gwc, ECF No. 26.

Pursuant to Plaintiffs' and the Bassetts' May 15 Agreement, later in 2017 the Bassetts provided to Plaintiffs “bank statements from their joint checking account with [NBM].” (Doc. 30 at 24, ¶ 49.) According to Plaintiffs, these records included “alarm bells” and “red flags” that should have demonstrated to NBM “clear criminal activity, ” leading the Bank to “freeze [the Bassetts'] accounts until certain questions were answered.” (Id. at 25.) More specifically, Plaintiffs allege that the Bassetts' NBM records reveal “very obvious money laundering with ‘stacking' and with numerous money wires, . . . [and] an average of $60, 000 to $70, 000 per month going both in [and] out of their account . . . for two years.” (Id. ¶ 51.) Given this activity, Plaintiffs claim the “[b]anking financial professionals [at NBM] clearly knew” that the Bassetts were laundering money (id.) and should have reported the situation to “law enforcement” (id. at 30, ¶ 58). Had NBM done so, Plaintiffs assert that “the Bassett[s'] fraud would [not] have . . . survived until 2014 when [Plaintiffs] first heard of Larry Bassett.” (Id. at 54, ¶ 121.) According to Plaintiffs, the Bassetts' Ponzi scheme “could not have happened” without NBM's involvement. (Id. at 81, ¶ 182; see id. at 64-65.)

In addition to obtaining the Bassetts' bank statements from NBM, Plaintiffs also obtained records filed with the Cornwall Town Clerk's Office in 2018, which led to their “alarming” discovery of “a number of home refinancing loans, new mortgage loans [that the] . . . Bassett[s] had obtained with their Cornwall house used as collateral, significant loans which they paid off quickly and in close succession.” (Id. at 43, ¶ 93.) Plaintiffs' review of the Cornwall records revealed that the Bassetts refinanced their home with home equity loans ten times between the years 2001 and 2017, that $800, 000 of the funding for those loans was from NBM, and that the Bassetts paid off those loans “in very short order, ” “sometimes in less than [one] year.” (Id. at 51, ¶ 116.) Moreover, in 2005, the Bassetts obtained a $300, 000 home equity loan from Ameriquest, which they paid off in August 2006. (Id. at 140, ¶ 35.) The Bassetts obtained another home equity loan from NBM in October 2006. (Id.) Plaintiffs allege that NBM should not have provided these loans to the Bassetts. (Id.)

According to Plaintiffs, the Bassetts engaged in their Ponzi scheme with “ill will, malice[, ] and a deliberate choice to defraud.” (Id. at 54, ¶ 122.) The Bassetts were “extremely studied” in their “manipulative abilities, ” and acted with “pre[]meditated intent to defraud in a very specific and pre[]planned way.” (Id. ¶ 123.) Their Ponzi scheme included the following elements:

• “falsified monthly written earning reports and falsified IRS 1099 INT[]s”;

• “two years of bank records showing obvious and continual criminal activity, with . . . approximately] . . . $60, 000-$70, 000 per month going both in [and] out of their account”;

• “obvious ‘stacking'”;

• “clear money laundering”; and

• “significant new mortgages/home equity loans . . . [that were] paid off quickly and in quick succession, totaling $1, 743, 450 paid off over 17 years.”^[1]

(Id. at 55, ¶ 123.)

Plaintiffs claim there were “many” “clear red flags” that NBM should have reported under the Bank Secrecy Act, other regulations, and ethics rules. (Id. at 56, ¶ 126.) According to Plaintiffs, if they, as laypeople and not banking professionals, could see the criminal nature of the Bassetts' bank activity, NBM whose job it is to notice fraudulent financial activity, “must have been and in fact was” aware of the illegal activity occurring in furtherance of the Bassetts' Ponzi scheme. (Id. at 92, ¶ 200.) Plaintiffs state that the Bassetts' NBM bank records were “blatantly and obviously criminal in nature” (id.), and thus it is “preposterous” to believe that NBM was unaware of the Bassetts' unlawful use of their NBM bank account (id. at 93, ¶ 202). Specifically, Plaintiffs claim NBM “knew” that all the mortgage loans the Bassetts had received through NBM were “problematic.” Given this knowledge, NBM should not have...