Neilson v. Union Bank of California, N.A., CASE No. CV 02-06942 MMM (CWx) (C.D. Cal. 10/20/2003)
| Decision Date | 20 October 2003 |
| Docket Number | CASE No. CV 02-06942 MMM (CWx). |
| Parties | R. TODD NEILSON AS TRUSTEE OF THE BANKRUPTCY ESTATE OF REED E. SLATKIN, WESLEY WEST FLEXIBLE PARTNERSHIP, STUART W. STEDMAN; STEDMAN WEST FAMILY PARTNERSHIP, LTD. AS SUCCESSOR TO WESLEY WEST LONG TERM PARTNERSHIP LTD.; STUART W. STEDMAN AS TRUSTEE OF THE NEVA AND WESLEY WEST FOUNDATION; WESLEY WEST MINERALS, LTD.; GEORGE V. KRISTE, JOHN K. POITRAS, MICHAEL B. AZEEZ; MICHAEL B. AZEEZ AS TRUSTEE OF THE AZEEZ, FOUNDATION; MICHAEL B. AZEEZ AS TRUSTEE OF THE BETTY SHAPIRO TRUST; MICHAEL B. AZEEZ AS TRUSTEE OF THE THOMAS DI MAGGIO TRUST; MICHAEL B. AZEEZ AS GENERAL PARTNER AND ON BEHALF OF SAZEEZ L.P.; ANTHONY PODELL; GREGORY B. ABBOTT, FRED OCKRIM; SHERI L. OCKRIM; And The Following Individuals In Their Individual and Representative Capacities On Behalf Of All Those Similarly Situated: STEVEN M. BESSERMAN; LINDA A. BESSERMAN; RIC JACKSON; CYNTHIA JACKSON; ANITA KAPLAN; MICHAEL KAPLAN; SUSAN SAFIRSTEIN; JAROSLAV J. MARIK; AND CALIFORNIA COMMUNITY FOUNDATION AS TRUSTEE OF THE BARBARA L. DEWEY CHARITABLE LEAD ANNUITY TRUST, Plaintiff's, v. UNION BANK OF CALIFORNIA, N.A.; COMERICA BANK-CALIFORNIA; IMPERIAL MANAGEMENT INCORPORATED; BANK OF ORANGE COUNTY; MARY CATHERINE LEIDER; and DOES 1 through 10, Defendants. |
| Court | U.S. District Court — Central District of California |
This class action seeks damages from Union Bank of California, Comerica Bank of California, Imperial Management, Inc., and Bank of Orange County, each of which is alleged to have conspired with Reed Slatkin in effecting a Ponzi scheme that defrauded hundreds of investors out of hundreds of millions of dollars. Plaintiff's allege that these defendants knowingly participated in and facilitated the Ponzi scheme by providing Slatkin with credit, allowing Slatkin to commingle personal and investor funds, and lending their name and prestige to his operations.
Plaintiff's filed this action in federal court on September 5, 2002, alleging claims for aiding and abetting a breach of fiduciary duty, aiding and abetting fraud, breach of fiduciary duty, fraud, negligent misrepresentation, constructive fraud, negligence and violation of California Business and Professions Code §§ 17200 et seq. Plaintiff's filed a first amended complaint on October 23, 2002, that asserted identical causes of action. Defendants moved to dismiss the first amended complaint. On February 20, 2003, the court granted in part and denied in part defendants' motion to dismiss. Plaintiff's filed a second amended complaint on April 14, 2003. On May 20, 2003, the parties submitted a stipulation that plaintiffs be allowed to file a third amended complaint withdrawing Count XI as well as a request for statutory penalties under California Business & Professions Code § 17200. The court subsequently entered an order on the parties' stipulation.
The third amended complaint defines the putative class plaintiffs seek to represent as "all individuals or entities that (a) made claims in the bankruptcy of Reed E. Slatkin; and (b) received in return less money from Reed E. Slatkin than they entrusted to him to invest,"1 Additionally, the pleading identifies, by name and amount invested, eighteen individuals and/or entities allegedly defrauded by Slatkin and the banks.2 It asserts that each of these "class representatives" falls within the class defined above.
Slatkin allegedly began his career as a full-time investment advisor during the mid-1980's, and invested money on behalf of a variety of individuals.3 Soon after Slatkin began accepting money from others to invest, he allegedly developed and executed a scheme to defraud those who entrusted their funds to him.4 One artifice Slatkin used to carry out the scheme was a limited partnership called the Reed Slatkin Investment Club L.P.5 Slatkin was general partner of the Club; its limited partners were individuals who gave Slatkin money to invest on their behalf.6 Slatkin actively ran the Club until he filed for bankruptcy on May 1, 2001.7 Plaintiff's allege that Slatkin operated a classic Ponzi scheme,8 i.e., he used monies paid by later investors to pay artificially high returns to initial investors, with the ultimate goal of attracting still more investors.9 In reality, plaintiffs allege, Slatkin's investment portfolio bore little resemblance to the claims he made.10 Plaintiff's assert that Slatkin spent investors' money on a lavish lifestyle, commingled investors' funds, and paid false returns to some investors with the principal paid by others.11 Slatkin allegedly received nearly $600,000,000 from investors; of this, approximately $250,000,000 has never been returned, and is still owed to class members.12
Plaintiff's have sued four separate banking institutions — Union Bank of "California, Comerica Bank-California, Bank of Orange County, and Imperial Management, Inc. (collectively "the Banks"). Defendant Union Bank is sued in its individual capacity and as successor to the trust business of Imperial Trust, which it acquired in May 1999.13 Defendant Bank of Orange County is sued as the direct successor-in-interest to Pacific Inland Bank.14 Defendant Imperial Management, Inc. is sued as the direct successor-in-interest to Imperial Trust Company,15 Defendant Comerica Bank is sued as the successor by merger to Imperial Bank (the prior parent of Imperial Trust) and as the alter-ego of co-defendant Imperial Management, Inc., Comerica's wholly-owned subsidiary.16 The liability of all four defendants, therefore, hinges on the alleged conduct of Imperial Trust Company, Pacific Inland Bank and/or Union Bank. Plaintiff's have also sued one individual, Mary Catherine Leider, for wrongful acts and omissions allegedly committed as administrator of accounts that had investments in the Club, first at Pacific Inland, and later at Imperial.17
Plaintiff's allege that Slatkin's investment scheme depended for its success on the involvement of the defendant Banks. The Banks, or their predecessors-in-interest, allegedly provided Slatkin with three types of assistance: (1) a steady flow of new money; (2) a mechanism for managing investors* custodial accounts; and (3) an aura of legitimacy that allowed the scheme to flourish.18 Plaintiffs contend that Slatkin established accounts at the Banks, and induced dozens of investors to transfer millions of dollars to "custodial" or "trustee" accounts there.19 Upon receipt of the investors' cash, the Banks allegedly transferred the money into accounts established in the name of the Club. With the Banks' alleged knowledge and assistance, Slatkin then commingled new investors' money with his own and other investors' money. Most of the accounts were held at Pacific Inland Bank, Imperial Trust, and commencing in May 1999, Union Bank. Santa Barbara Bank & Trust held the remaining Club accounts. Plaintiffs further allege that, due to the legitimacy conferred on the scheme by the Banks' involvement, Slatkin convinced individuals to give him money directly.20 In addition to lending their prestige to Slatkin, the Banks allegedly vouched for his skill and trustworthiness when asked.21
Plaintiffs make numerous specific allegations regarding the conduct of each of the Banks. As respects Imperial and Pacific Inland (Imperial's predecessor-in-interest), the complaint alleges that individual officers at both Banks acted as salespersons for Slatkin and encouraged individuals to invest with Slatkin.22 Plaintiff's also contend that individuals at Imperial and Pacific Inland represented to investors that the Club was audited annually, even though neither Bank ever conducted such an audit.23 They further allege that Imperial failed to certify investors' account statements despite an obligation to do so,24 and that it purportedly encouraged investors to rely on its official "certified" statements rather than Slatkin's unofficial reports.25 Plaintiffs allege that Imperial was aware of Slatkin's illegal activities due to the highly unusual nature of the Club26 Finally, they assert that Slatkin bribed Mary Catherine Leider, the Club account managerial Imperial, to assist him in the operation of his Ponzi scheme.27
As respects Union Bank (which acquired Imperial's trust business in May 1999), plaintiffs allege that, like Imperial, it failed properly to value the investments of the class members, and to audit the investments held in Slatkin accounts as it was required to do.28 They assert that, in violation of its own policies, Union Bank allowed Slatkin to overdraw the Club checking account by hundreds of thousands of dollars,29 and extended a $4,000,000 unsecured line of credit to Slatkin in February 2000.30 Finally, they allege that Union Bank performed "inappropriate favors" for Slatkin to induce him to provide additional business to it.31 Plaintiffs allege generally that Union Bank knew or should have known of Slatkin's illegal activities,32
Plaintiffs argue that all of the Banks "rubber-stamped" the false information Slatkin gave them, and treated the client accounts as "one common pool of fungible and liquid assets. "33 They also allege that each of the Banks, in its own right or through a predecessor-in-interest, actively participated in Slatkin's Ponzi...
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