Metaxas v. Lee
| Citation | 503 F.Supp.3d 923 |
| Decision Date | 30 November 2020 |
| Docket Number | Case No. 19-cv-03819-EMC |
| Parties | Poppi METAXAS, Plaintiff, v. Kenneth LEE, et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
Nancy Chung, David Herman Schwartz, Law Offices of David H. Schwartz, Inc., Scott D. Kalkin, Esq., Roboostoff & Kalkin a Professional Law Corporation, San Francisco, CA, for Plaintiff.
Aaron Robert Marienthal, Alicia Anne Baiardo, David Carlyle Powell, Jenny Yi, McGuireWoods, LLP, San Francisco, CA, for Defendants.
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS
Plaintiff Poppi Metaxas brought this action under the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO") against nine defendants ("Defendants"), all employees or former employees of the community bank she once ran as CEO. Ms. Metaxas alleges that Defendants have "denied her claim for retirement benefits as part of a long-running criminal scheme to inflate the bank's assets with funds set aside for her retirement plan." Docket No. 48 ("Order") at 1. In June 2020, Ms. Metaxas filed a Corrected First Amended Complaint ("FAC") after this Court granted Defendants’ motion to dismiss her original complaint for failing to state a claim for relief. Defendants now move to dismiss the FAC on the same grounds. For the following reasons, the Court GRANTS Defendants’ motion and does so with prejudice.
The facts of this case were originally stated in the Court's order of May 20, 2020, granting Defendants’ motion to dismiss Ms. Metaxas's original complaint. See Order at 2-4. Gateway is a small, federally chartered bank based in northern California. FAC ¶ 1. Ms. Metaxas was Gateway's CEO from 1995 until her resignation in May 2010. Id. ¶¶ 1, 66. In 2004, Gateway gave Ms. Metaxas a $290,000 raise but the money was not paid to her directly. Id. ¶ 2. Instead, Gateway used it to pay the premiums for a $5 million life insurance policy, which was to fund "a customized supplemental executive retirement plan" ("SERP") for Ms. Metaxas. Id. Under the SERP, Ms. Metaxas would become eligible for retirement benefits shortly after her retirement or her sixtieth birthday, whichever occurred later. Id. Exs. A & B. If Ms. Metaxas resigned voluntarily she would be entitled to all benefits that had already accrued, but if she was fired for cause she would not be entitled to any benefits. Id. Ex. A at 4–5.
Then came the financial crisis. By late 2008, a federal regulatory agency, the Office of Thrift Supervision ("OTS"), had instructed Gateway "to increase its capital position to provide coverage for potential losses from increasing levels of troubled assets." Id. ¶ 4. Gateway's Board was also directing the bank's executives to raise capital and sell troubled assets. Id.
It was at this point that trouble began for Ms. Metaxas and Gateway. Ms. Metaxas and Gateway's Vice President, Michael Kenny, orchestrated a transaction in which Gateway loaned its largest customer, Ideal Mortgage, $3.65 million. Id. ¶ 54; Defendant's RJN (Docket No. 57-2), Ex. B, Tr. of Pleading at 18–21. That money came straight back to Gateway, as the down payment on certain troubled assets that federal regulators wanted off the bank's books. Id. Although the transactions were intended to "make Gateway's books look more acceptable to regulators," Ms. Metaxas would later admit that, "[t]aken together, [they] did not actually improve the condition of the bank." Id. OTS was not fooled in any event, and the so-called Round-Trip Transaction led to greater regulatory scrutiny. FAC ¶ 6. In April 2009, OTS issued a cease-and-desist order, which among other things directed Gateway to "maintain certain minimum regulatory capital ratios." Id. ¶ 4.
According to the FAC, the cease-and-desist order was the catalyst for a plot to fraudulently deprive Ms. Metaxas of her SERP benefits. The scheme began on April 20, 2010, when defendants Tim Green, Lawrence Fentriss, and Lawrence Wang, along with James Baxter,1 illegally "eliminated GATEWAY's SERP PLAN liability" to Ms. Metaxas to meet the minimum net capital requirements mandated by the cease-and-desist order. Id. ¶ 7(b), 78. (Defendants, however, argue that this liability was never "eliminated" because it was always part of the bank's general assets, and never specifically set aside for the SERP; see infra re: predicate act of abstraction.) Appropriating the funds allowed Green, Fentriss, Wang and various other defendant officers and directors of Gateway to fraudulently report to the FDIC and OTS (later the Office of the Comptroller of the Currency ("OCC")) that Gateway had approximately $1.24 million more in assets than it actually did. Id. ¶ 7(b), 78-80. That in turn helped Gateway meet the net capital requirements imposed by OTS/OCC and avoid the regulatory consequences (e.g. , higher deposit insurance premiums) that would otherwise have followed. Id. Gateway's false reporting to the regulatory agencies allegedly continues to the present day. See, e.g. , id. ¶ 7(b)-(c).
The next step in the scheme was to deny Ms. Metaxas her SERP benefits. Ms. Metaxas had begun receiving cancer
treatments in 2008, went on sick leave in March 2010, and submitted her resignation to the Board of Directors on May 26, 2010. Id. ¶ 3. The Board accepted Ms. Metaxas's resignation the next day. Id. ¶ 66. On March 25, 2013, a few weeks before her sixtieth birthday, Ms. Metaxas submitted her claim for SERP benefits. Id. ¶¶ 69–70. Her claim was denied on February 25, 2016 by a SERP Administrative Committee composed of Defendants Kenneth Lee and James Joseph Keefe, and Oakland Branch Manager Frances Baker. Id. ¶ 99. Ms. Metaxas alleges that the basis for the denial was fraudulent because, e.g. , the committee stated that she was not disabled when she ended her employment with Gateway, was not owed the benefits that had accrued as of her resignation, and had not performed at a level meriting SERP benefits. Id. Ms. Metaxas appealed the denial of her claim. Id. ¶ 100. An appeals committee composed of defendants Dale McKinney, Colin Madden, and Vinod Thukral then denied her appeal, again based on allegedly false statements. Id. In denying Ms. Metaxas's request for benefits, the committee explained that "[Metaxas] did not qualify for SERP benefits because ‘ample evidence shows Ms. Metaxas's willful and intentional violation of banking laws, most notably her own guilty plea,’ warranted termination for cause such that [Metaxas] was not entitled to benefits pursuant to Section 3.4 of the SERP." Docket No. 57 ("Mot.") at 5; see also id. at 2-3 ().
The final step in the scheme was lying to law enforcement to hide the wrongful elimination of Gateway's liability to Ms. Metaxas and the ensuing false statements to federal regulators. By June 2011, law enforcement was investigating the Round-Trip Transaction. FAC ¶ 89. Ms. Metaxas alleges that various defendants made false statements in interviews with the FBI and the U.S. Attorney's Office and in affidavits filed with a United States district court. Id. ¶ 10. These false statements fell into two categories: exaggerations of the damages Gateway suffered because of Ms. Metaxas's conduct, and false claims that Ms. Metaxas was fired (or knew she was going to be fired). See, e.g. , id. ¶¶ 10, 73.
Ms. Metaxas eventually pled guilty to one count of conspiracy to commit bank fraud in the Eastern District of New York in April 2015. Id. ¶ 73. At her plea hearing, Ms. Metaxas admitted that she helped arrange the Round-Trip Transaction and that she "did not provide the complete information about th[is] transaction[ ] to Gateway's board." Docket No. 57-2 ("Defendants’ RJN"), Ex. B, Tr. of Pleading at 18–19. Ms. Metaxas further acknowledged that she "knew it was against the law to commit a fraudulent scheme like this." Id. at 22. Ms. Metaxas later filed a petition "to overturn her guilty plea and conviction ... on grounds of ineffective assistance of counsel"; the petition was denied earlier this year and is currently on appeal. FAC ¶ 104.
In July 2015, Gateway sued Ms. Metaxas in the Superior Court of San Mateo County, California, "seeking damages it allegedly suffered as a result of the Round-Trip Transaction." Id. ¶ 74. After an eight-day bench trial, the court ruled for Gateway. Mot. at 1. It emphasized that Ms. Metaxas admitted, when pleading guilty, that she had been an integral part of the criminal scheme. Mot. at 6 ); see also Defendants’ RJN, Ex. A, State Court Decision at 12 (). Ms. Metaxas has since moved to vacate the judgment. Mot. at 1 n.4.
The pending motion follows Defendants’ successful motion to dismiss Ms. Metaxas's original complaint. There, Defendants argued that Ms. Metaxas's claims were (1) barred by the doctrine of collateral estoppel, (2) untimely, and (3) inadequately pled. See Order at 5. The Court rejected the first and second of these contentions but agreed with the third, concluding, inter alia , that Ms. Metaxas failed to allege a "pattern of racketeering activity" within the meaning of RICO. Id. at 17-20.
Defendants first argued that because Ms. Metaxas previously "pled guilty to conspiring against Gateway and deceiving its Board" she could not later allege "that Defendants committed predicate RICO acts by creating a false pretext for denying her SERP benefits." Id. at 7 (internal quotations omitted). But the Court held that her guilty plea did not preclude Ms. Metaxas from alleging, e.g. , "that denial of her SERP benefits was premised on fraudulent...
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