LINDA R. READE, Chief Judge.
TABLE OF CONTENTS
I. INTRODUCTION ....................................................1086
II. RELEVANT PROCEDURAL HISTORY .....................................1086
A. Enterprise's Motion .........................................1087
B. Plaintiffs' Motion ..........................................1087
III. SUBJECT MATTER JURISDICTION .....................................1087
IV. SUMMARY JUDGMENT STANDARD .......................................1088
V. FACTUAL BACKGROUND ..............................................1088
A. Parties .....................................................1088
B. Alleged "Ponzi Scheme" ......................................1089
C. Enterprise's Role in the Scheme .............................1089
D. Collapse of the BLP .........................................1093
VI. ANALYSIS ........................................................1093
A. Count I .....................................................1093
1. Violation of RICO, 18 U.S.C. § 1962(c) ..................1094
2. Existence of an enterprise ..............................1094
a. Applicable law ......................................1094
b. Application .........................................1095
3. Conduct in association with the enterprise ..............1096
a. Applicable law ......................................1096
b. Application .........................................1099
4. Summary .................................................1101
B. Count II ....................................................1101
1. Conspiracy to violate RICO, 18 U.S.C. § 1962(d) ....1101
2. Application .............................................1102
C. Count III ...................................................1102
1. Applicable law ..........................................1103
a. Causation requirement ...............................1103
b. General contract interpretation principles ..........1104
2. Enterprise's Motion .....................................1104
a. Parties' arguments ..................................1104
b. Application .........................................1105
3. Plaintiffs' Motion ......................................1107a. Parties' arguments ...................................1107b. Application ..........................................1108D. Count IV ....................................................11091. Applicable law ..........................................11092. Enterprise's Motion .....................................1110a. Parties' arguments ..................................1110b. Application .........................................11113. Plaintiffs' Motion ......................................1112a. Parties' arguments ..................................1112b. Application .........................................1112VII. CONCLUSION ......................................................1113
The matters before the court are Defendant Enterprise Bank & Trust's ("Enterprise") "Motion for Summary Judgment" ("Enterprise's Motion") (docket no. 614) and Plaintiffs' "Motion for Partial Summary Judgment on Counts [III] and [IV] against Enterprise" ("Plaintiffs' Motion") (docket no. 626).
On October 11, 2012, seventy
On April 21, 2013, Enterprise filed Enterprise's Motion. On that same date, Enterprise filed a Brief in Support of Enterprise's Motion (docket no. 615) and a Statement of Material Facts in Support of Enterprise's Motion. On May 13, 2013, Plaintiffs filed a Resistance to Enterprise's Motion (docket no. 649).
On April 24, 2013, Plaintiffs filed Plaintiffs' Motion. That same date, Plaintiffs filed a Statement of Material Facts in Support of Plaintiffs' Motion (docket no. 627). On April 25, 2013, Plaintiffs filed a Brief in Support of Plaintiffs' Motion (docket no. 628).
The court has federal question jurisdiction over Plaintiffs' claims against Enterprise
The court has supplemental jurisdiction over Plaintiffs' state-law breach of contract claim in Count III and negligence claim in Count IV because they are so related to the claims over which the court has federal question jurisdiction that they form part of the same case or controversy. See 28 U.S.C. § 1367(a) ("[T]he district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy...."). In other words, "[t]he federal-law claims and state-law claims in the case derive from a common nucleus of operative fact and are such that [a plaintiff] would ordinarily be expected to try them all in one judicial proceeding." Kan. Pub. Emps. Ret. Sys. v. Reimer & Koger Assocs., Inc., 77 F.3d 1063, 1067 (8th Cir.1996) (alteration in original) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 349, 108 S.Ct. 614, 98 L.Ed.2d 720 (1988)) (internal quotation marks omitted).
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party; a fact is material if its resolution affects the outcome of the case." Amini v. City of Minneapolis, 643 F.3d 1068, 1074 (8th Cir.2011) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)), cert. denied, ___ U.S. ___, 132 S.Ct. 1144, 181 L.Ed.2d 1018 (2012). "[S]elf-serving allegations and denials are insufficient to create a genuine issue of material fact." Anuforo v. Comm'r, 614 F.3d 799, 807 (8th Cir.2010). "To survive a motion for summary judgment, the nonmoving party must substantiate [its] allegations with sufficient probative evidence [that] would permit a finding in [its] favor based on more than mere speculation, conjecture, or fantasy." Barber v. C1 Truck Driver Training, LLC, 656 F.3d 782, 801 (8th Cir.2011) (second alteration in original) (quoting Putman v. Unity Health Sys., 348 F.3d 732, 733-34 (8th Cir.2003)) (internal quotation marks omitted). The court must view the record in the light most favorable to the nonmoving party and afford it all reasonable inferences. See Schmidt v. Des Moines Pub. Sch., 655 F.3d 811, 819 (8th Cir.2011).
Viewing the evidence in the light most favorable to the nonmoving parties and affording them all reasonable inferences, the uncontested material facts are as follows.
The Complaint names thirteen Defendants: (1) Martin T. Sigillito, an attorney, American Anglican Bishop and Missouri citizen who did business as Martin T. Sigillito & Associates, Ltd. ("Martin Sigillito & Associates"); (2) Paul Vogel, an accountant, attorney, former President and CEO of Enterprise Bank & Trust's Trust Department and Missouri citizen; (3) Enterprise Bank & Trust, a Missouri corporation and subsidiary of Enterprise Financial Services Corp.; (4) James Scott Brown, an attorney and Kansas citizen who did business as the British American Group, Inc., a Kansas corporation; (5) Metis Insaat ve Ticaret A.S. ("Metis"), a Turkish company;
The only remaining Defendants in this action are Enterprise and Sigillito.
Sigillito and others organized and operated a fraudulent loan program called the British Lending Program ("BLP") in which individuals, including Plaintiffs, loaned money to Smith and Distinctive Properties for purported land purchases in England. Sigillito and others attracted lenders "with written marketing materials which misrepresented the quality of the investment and the destination of loan funds, which were represented to be invested in land options in England." Complaint ¶ 10. As part of the BLP, the lenders entered into loan agreements whereby they lent money to Distinctive Properties, which is listed as the borrower in the loan agreements. Smith is listed as the surety in the loan agreements. Each loan agreement included an "Asset & Liability Statement," which the loan agreements warranted as "a true, accurate and current statement of [Smith's] assets and liabilities." Id. ¶ 51. However, the Asset & Liability Statements significantly overstated Smith's assets and understated his liabilities.
The BLP "operated as a classic Ponzi scheme in which loan payments were paid from new loans." Id. ¶ 14 (emphasis omitted). Over one hundred individuals loaned a total of approximately $52.5 million to the BLP. "Defendants only transferred $1.15 million of this amount to ... Smith for purported investments." Id. Self-directed IRAs were the main source of BLP funds. Sigillito and others "targeted these IRAs because they tend[ ] to be renewed (rolled over) each year and the account holders would not ask for the money until retirement." Id. ¶ 12.
Self-directed IRAs, which were a primary source of funding for the BLP, require "a qualified custodian to hold IRA assets on behalf of the account holder." Id. ¶ 86. "IRA custodians maintain the assets and all corresponding transactions and records, file required [Internal Revenue Service] reports, issue client statements, and assist clients in understanding the rules and regulations pertaining to certain
"Enterprise commenced their custodial relationship" with the individual IRA lenders ("Customers") "with a Custody Agreement." Id. ¶ 117. The Custody Agreements include the following language:
Thomas Currier Custody Agreement (docket no. 456-12) at 1, 2, 3-4, 5, 7; Daryll Currier Custody Agreement (docket no. 456-12) at 9, 10, 11-12, 13, 15; Roy Currier Custody Agreement (docket no. 456-12) at 17, 18, 19-20, 21, 23; Phillip L. Rosemann Custody Agreement (docket no. 616-1) at 5, 6, 7-8, 9, 11; Leonard Roman
Each Customer listed Enterprise as the account custodian and identified an attorney as "the Lender's Solicitors" in the loan agreement. See, e.g., David Caldwell Loan Agreement (docket no. 456-6) at 2. Pursuant to the Custody Agreements, the Customers made payments into their IRAs by sending money to Enterprise. Although the loan agreements listed Distinctive Properties as the borrower, after Customers executed their loan agreements and sent their IRA loan funds to Enterprise, Enterprise mailed the Customers' money to Sigillito's IOLTA account at a St. Louis Bank without written documentation or confirmation that Smith or Distinctive Properties ultimately received the loan funds. Complaint ¶¶ 133-135. Customers generally did not give Enterprise any instructions to send the loan funds to Sigillito. Rather, Enterprise took instruction from Sigillito.
As custodian, Enterprise mailed Customers periodic account statements that purported to show the assets in their IRAs, periodic interest payments and other information. These statements "reinforced the belief that the loans were secure" because the statements "falsely showed that the money was sent to England and that the value of the accounts increased with yearly interest payments from England. Without the fraudulent account statements, the [Customers] would not have made, or rolled over (re-invested), their loans." Id. ¶ 26. However, Enterprise sent the money to Sigillito, rather than to Smith or Distinctive Properties, and never confirmed whether Sigillito ultimately sent the money to Smith or Distinctive Properties. Additionally, Enterprise misrepresented "that the repayment of principle [sic] and interest [to the Customers] was made directly from Distinctive Properties." Id. ¶ 144. "However, Enterprise never received any repayment directly from Distinctive Properties." Id. ¶ 146. Enterprise also increased the value in Plaintiffs' accounts with roll-over principal and interest, even when Enterprise never received such income. Id. ¶ 147.
In 2009, Enterprise sent an Acknowledgment and Indemnification Agreement to Customers, which provided: "I hereby release, indemnify, hold harmless and discharge Enterprise ..., as Custodian, from
On April 28, 2011, the government filed a twenty-two count Indictment against Sigillito, Brown and Smith, charging wire fraud, mail fraud, conspiracy to commit mail and wire fraud and engaging in and attempting to engage in money laundering transactions. See Indictment (docket no. 2), United States v. Martin T. Sigillito et al., 11-CR168-LRR (E.D. Mo. filed Apr. 28, 2011). On June 1, 2011, Enterprise notified the Customers that it was assigning a value of $0 for the loans that were part of the BLP. Complaint ¶ 174. Brown and Smith plead guilty to the charges against them in the Indictment. Sigillito proceeded to trial and, on March 19, 2012, a jury trial on Counts 1 through 22 of the Indictment commenced. On April 13, 2012, the jury returned guilty verdicts on Counts 1 through 13 and 16 through 22 of the Indictment.
The court will consider each of Plaintiffs' claims in the Complaint against Enterprise and determine whether summary judgment is appropriate. First, the court will consider whether summary judgment in favor of Enterprise is appropriate with respect to Counts I and II. Next, because Enterprise and Plaintiffs both moved for summary judgment on Counts III and IV, the court will consider whether summary judgment in favor of Plaintiffs or Enterprise is appropriate with respect to Counts III and IV.
The court will apply Missouri law to Plaintiffs' state-law claims in Counts III and IV. The parties agree that Missouri law applies. In addition, the Custody Agreements provide that they "shall be governed by the laws of the State of Missouri." Thomas Currier Custody Agreement at 5.
In Count I of the Complaint, Plaintiffs allege that Enterprise violated RICO, 18 U.S.C. § 1962(c). In Enterprise's Motion, Enterprise argues that the court should grant summary judgment in its favor with respect to Count I because the alleged association-in-fact enterprise between Martin Sigillito & Associates and the British American Group is not a proper RICO enterprise because it is indistinguishable from the alleged pattern of racketeering. With respect to this argument, Enterprise further claims that, "[a]side from the operation of the Ponzi scheme, the association of [Martin Sigillito &] Associates and [the] British American Group does not exist as a stand-alone entity." Brief in Support of Enterprise's Motion at 6. Additionally, Enterprise argues that summary judgment in its favor is appropriate with respect to Count I because Enterprise did not participate in the operation or management of an identifiable enterprise.
In the Resistance to Enterprise's Motion, Plaintiffs contend that summary judgment in Enterprise's favor is not appropriate because the RICO association has an
Congress enacted RICO "to curb the infiltration of legitimate business organizations by racketeers." Sinclair v. Hawke, 314 F.3d 934, 943 (8th Cir.2003) (quoting Atlas Pile Driving Co. v. DiCon Fin. Co., 886 F.2d 986, 990 (8th Cir.1989)) (internal quotation mark omitted). To this end, Congress created a private cause of action for those injured by racketeering activity. Pursuant to 18 U.S.C. § 1964(c):
18 U.S.C. § 1964(c). Under 18 U.S.C. § 1962(c), it is "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." 18 U.S.C. § 1962(c). "Racketeering activity" includes the offenses of mail fraud, wire fraud and money laundering. 18 U.S.C. § 1961(1)(B).
To prove a violation of § 1962(c), a plaintiff must show: "(1) the existence of an enterprise; (2) conduct by the defendants in association with the enterprise; (3) the defendants' participation in at least two predicate acts of racketeering; and (4) conduct that constitutes a pattern of racketeering activity." In re Sac & Fox Tribe of the Miss. in Iowa/Meskwaki Casino Litig., 340 F.3d 749, 767 (8th Cir.2003); see also Nitro Distrib., Inc. v. Alticor, Inc., 565 F.3d 417, 428 (8th Cir.2009) (stating that a plaintiff must show "`(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity'" (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985))).
In order to satisfy the first element of a claim under RICO, 18 U.S.C. § 1962(c), a plaintiff must establish "the existence of an enterprise." In re Sac & Fox Tribe of the Miss. in Iowa/Meskwaki Casino Litig., 340 F.3d at 767. "An `enterprise' is defined to include `any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.'" Craig Outdoor Adver., Inc. v. Viacom Outdoor, Inc., 528 F.3d 1001, 1026 (8th Cir.2008) (quoting 18 U.S.C. § 1961(4)). An enterprise "is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981).
"Three elements must be proven to show that a RICO enterprise existed: (1) a common purpose that animates the individuals associated with it; (2) an ongoing organization with members who function as a continuing unit; and (3) an ascertainable
"In deciding whether an alleged RICO enterprise has an ascertainable structure distinct from the pattern of racketeering activity, [the court] must `determine if the enterprise would still exist were the predicate acts removed from the equation.'" Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 354-55 (8th Cir.2011) (quoting Handeen v. Lemaire, 112 F.3d 1339, 1352 (8th Cir.1997)); see also United States v. Bledsoe, 674 F.2d 647, 664 (8th Cir.1982) ("[A]n enterprise cannot simply be the undertaking of the acts of racketeering, neither can it be the minimal association which surrounds these acts."). Whether the enterprise has a structure that is distinct from the pattern of racketeering activity turns on whether the enterprise would still exist if the conduct that constitutes the racketeering activity were absent. See Crest Constr. II, Inc., 660 F.3d at 354-55. "The focus of the inquiry is whether the enterprise encompasses more than what is necessary to commit the predicate RICO offense." Diamonds Plus, Inc. v. Kolber, 960 F.2d 765, 770 (8th Cir.1992).
In Stephens, Inc. v. Geldermann, Inc., 962 F.2d 808 (8th Cir.1992), the Eighth Circuit Court of Appeals considered whether an alleged association-in-fact enterprise had a structure distinct from the pattern of racketeering activity. Id. at 815. There, the plaintiff brought a RICO claim against a commodities-futures merchant, seeking to recover trading losses. Id. at 810-11. The plaintiff alleged the existence of an association-in-fact enterprise. Id. at 815. The Eighth Circuit held that the plaintiff failed to allege a proper RICO enterprise distinct from the alleged pattern of racketeering activity because "[t]his group ... had no structure independent of the alleged racketeering activity" and "[t]he only common factor that linked ... the parties together and defined them as a distinct group was their direct or indirect participation in [the] scheme to defraud [the plaintiff]." Id. at 815-16 (emphasis added). The Eighth Circuit further stated that, although each member of the enterprise "carried on other legitimate activities, these activities were not in furtherance of the common or shared purpose of the enterprise and, thus, were not acts of the enterprise." Id. at 816. Thus, in Stephens, the Eighth Circuit found that the plaintiff's RICO claim could not stand because, "[a]bsent the predicate acts of wire and mail fraud, the association-in-fact enterprise which [the plaintiff] alleged had no form or structure." Id.
In the Complaint, Plaintiffs allege the existence of an association-in-fact enterprise between Martin Sigillito & Associates and the British American Group, which "functioned as an informal association" and engaged in activities which affected "both interstate and foreign commerce." Complaint ¶ 206. Enterprise contends that such enterprise is "indistinguishable from the alleged pattern of racketeering
The court finds that Plaintiffs' argument is without merit. The Complaint fails to point to any activity of the alleged enterprise that is distinct from the racketeering activity at issue. In the Resistance to Enterprise's Motion, the only non-racketeering activity that Plaintiffs point to is the loan between Metis, a Turkish company, and Braithwaite, a Belize corporation incorporated by Sigillito for Phillip L. Rosemann, a Plaintiff in the instant case, as a vehicle to reduce Rosemann's taxes and limit his liability. Sigillito drafted, negotiated, reviewed and approved the note between Braithwaite and Metis. On October 22, 2012, the court granted Metis's motion to dismiss for lack of subject matter jurisdiction. October 22, 2012 Order at 25. In the October 22, 2012 Order, the court noted that "[t]here is no allegation that Metis was in any way involved with ... the BLP, and there is no evidence that the money involved in the dispute between Metis and Braithwaite was involved in the Ponzi scheme." Id. at 11. In addition, the court held that "[t]he fact that Sigillito was associated with the agreement between Metis and Braithwaite and also played a role in the alleged RICO violations" was not a sufficient connection to allow the court to exercise supplemental subject matter jurisdiction over Plaintiffs' claims against Metis. Plaintiffs have alleged no additional facts to show how the alleged enterprise, rather than Sigillito, was involved with the Metis loan. There is nothing in the record to suggest that the British American Group was involved with the Metis loan. Thus, the Metis loan does not qualify as a non-racketeering activity of the alleged enterprise.
Furthermore, even if Sigillito "carried on other legitimate activities, these acts were not in furtherance of the common or shared purpose of the enterprise and, thus, were not acts of the enterprise." Stephens, 962 F.2d at 816. Thus, any legitimate activities carried on by Martin Sigillito & Associates or the British American Group individually are not sufficient to show a structure beyond that inherent in the pattern of racketeering activity because "[t]he only common factor that linked" Martin Sigillito & Associates with the British American Group "and defined them as a distinct group was their direct or indirect participation in [the] scheme to defraud [Plaintiffs]." Id. at 815-16 (emphasis added). Therefore, the court finds that Plaintiffs have not shown that the alleged association-in-fact of Martin Sigillito & Associates and the British American Group has any structure distinct from the alleged racketeering activities and, accordingly, have failed to show the existence of a RICO enterprise.
In order to satisfy the second element of a claim under RICO, 18 U.S.C.
"An enterprise is `operated' not just by upper management but also by lower rung participants who ... are under the direction of upper management." Reves, 507 U.S. at 184, 113 S.Ct. 1163; see also id. at 184 n. 9, 113 S.Ct. 1163 (declining to decide how far RICO liability may extend down the ladder of an enterprise's operation because the defendant was not liable because he was not acting under the direction of the enterprise). Additionally, an enterprise may be operated or managed by "outsiders" who are associated with the enterprise "who exert control over it as, for example, by bribery." Id. at 184-85, 113 S.Ct. 1163. "`[O]utsiders' may be liable under § 1962(c) if they are `associated with' an enterprise and participate in the conduct of its affairs — that is, participate in the operation or management of the enterprise itself." Id. at 185, 113 S.Ct. 1163.
The Supreme Court's use of bribery as an example of an outsider's act that may qualify as "operation or management" of the enterprise suggests that it is difficult to find an outsider liable under § 1962(c). See, e.g., Abbott v. Chem. Trust, No. 01-2049-JWL, 2001 WL 492388, at *15 (D.Kan. Apr. 26, 2001) (dismissing the plaintiffs' RICO claim against a bank that was an outsider to the enterprise operating a Ponzi scheme, stating that "simply provid[ing] goods or services that ultimately benefit the enterprise does not mean that one becomes liable under RICO as a result" (alteration in original) (quoting BancOklahoma Mortg. Corp. v. Capital Title Co., 194 F.3d 1089, 1102 (10th Cir. 1999)) (internal quotation marks omitted)); Dep't of Econ. Dev. v. Arthur Andersen & Co. (U.S.A.), 924 F.Supp. 449, 467 (S.D.N.Y.1996) (stating that the Supreme Court's bribery example "emphasizes how difficult it is to hold an outsider liable under § 1962(c) after Reves"); De Wit v. Firstar Corp., 879 F.Supp. 947, 965-66 (N.D.Iowa 1995) (dismissing a § 1962(c) claim where the "defendants' conduct was one step removed from management of the RICO enterprise itself," after reasoning that "even provision of services essential to the operation of the RICO enterprise itself is not the same as participating in the conduct of the affairs of the enterprise").
"Furnishing a client with ordinary professional assistance, even when the client happens to be a RICO enterprise, will not normally rise to the level of participation sufficient to satisfy the Supreme Court's pronouncements in Reves." Handeen, 112 F.3d at 1348. Thus, "an attorney or other professional does not conduct an enterprise's affairs through run-of-the mill provision of professional services." Id.
Id. at 1349. Many other courts have also acknowledged the principle that merely furnishing a client with ordinary professional assistance will not generally rise to the level of participation in an enterprise that is sufficient to satisfy the operation or management test. See Reves, 507 U.S. at 185, 113 S.Ct. 1163 (applying the operation or management test and holding that the defendant-accounting firm's conduct was insufficient to impose RICO liability when the accounting firm prepared audits, reviewed transactions, certified records as fair representations of the enterprise's financial status and presented reports to the enterprise's directors and shareholders); Walter v. Drayson, 538 F.3d 1244, 1248-49 (9th Cir.2008) (holding that an attorney's provision of services did not satisfy the operation or management test); Goren v. New Vision Int'l, Inc., 156 F.3d 721, 727-28 (7th Cir.1998) (finding a doctor and two other defendants not liable because "simply performing services for an enterprise, even with knowledge of the enterprise's illicit nature, is not enough to subject an individual to RICO liability under § 1962(c)"); Nolte v. Pearson, 994 F.2d 1311, 1317 (8th Cir.1993) (holding that the defendant-attorneys' conduct was insufficient to impose RICO liability when the attorneys prepared an opinion letter and accompanying memorandum advising investors of federal income tax consequences, a defense letter agreeing to render legal assistance to investors and two documents explaining whether changes in federal tax laws would have a material effect on an investor's income taxes).
However, attorneys and other professionals may be liable under § 1962(c) "when [they] cross[ ] the line between traditional rendition of [professional] services and active participation in directing the enterprise." Handeen, 112 F.3d at 1349, 1350 (reversing the district court's dismissal of the plaintiff's claim under 18 U.S.C. § 1962(c) against a law firm because the allegations that the firm assisted in the manipulation of the bankruptcy process to obtain a discharge for the plaintiff, if true, would justify a finding that the attorneys "`participated in the core activities that constituted the affairs of the [estate]'" and, thus, that the attorneys "participated in the conduct of the alleged RICO enterprise") (alteration in original) (quoting Napoli v. United States, 32 F.3d 31, 36 (2d Cir.1994), aff'd on reh'g, 45 F.3d 680 (2d Cir.1995)); MCM Partners, Inc. v. Andrews-Bartlett & Assocs., Inc., 62 F.3d 967, 978-79 (7th Cir.1995) (reversing the district court's dismissal of a RICO claim because the exhibition contractors were not "outsiders" when they acted at the direction of upper management and "were vital to the achievement of the enterprise's primary goal" and, thus, the plaintiff's allegations were sufficient to establish the defendants' participation in the operation or management of a RICO enterprise); Napoli, 32 F.3d at 35-36 (affirming attorneys' convictions for RICO violations where they "played some part in directing the affairs of the charged enterprise," "participated in the [enterprise's] core activities" and "discharged their responsibility through a pattern of illegal acts"); In re Am. Honda Motor Co., Dealerships Relations Litig., 941 F.Supp. 528, 559-60 (D.Md.1996) (finding allegations that attorneys "were paid
In the Complaint, Plaintiffs claim that Enterprise "exercised a significant degree of direction over the affairs of the [a]ssociation of [Martin] Sigillito [& Associates] [and][the] British American [Group]." Complaint ¶ 211. Plaintiffs' allegations in Count I suggest that Enterprise may have assisted the alleged RICO enterprise; however, there is no evidence suggesting that Enterprise directed the enterprise, exerted substantial control over its affairs or managed its basic structure. Rather, Plaintiffs' allegations suggest that Enterprise provided its regular, custodial services to Plaintiffs and did nothing beyond engaging in the operation or management of its own affairs.
The Eighth Circuit addressed the distinction between a defendant managing an enterprise's affairs and a defendant merely managing its own affairs in Dahlgren v. First National Bank of Holdrege, 533 F.3d 681, 688 (8th Cir.2008). In Dahlgren, cattle investors and corn producers sued a bank for, among other things, damages under § 1962(c). Id. at 686. The plaintiffs alleged that the bank "misled them into continuing to do business with [a cattle company and RICO enterprise] by concealing [the cattle company's] increasing financial weakness to protect the [b]ank's substantial interest as [the cattle company's] creditor." Id. A jury found the bank liable and the district court denied the bank's post-trial motion for judgment as a matter of law. Id. The Eighth Circuit reversed. Id.
The Eighth Circuit concluded that, "[w]ith one possible exception, all of the [b]ank's actions that [the] plaintiffs cite[d] as evidence of the [b]ank's control of [the cattle company] [fell] into the category of a creditor conducting its own affairs." Id. at 690. The Eighth Circuit summarized the bank's conduct by noting that the bank allowed the commingling of funds from different entities, honored substantial overdrafts that effectively increased the cattle company's line of credit, allowed notes due to the bank to remain past due, honored insufficient checks to investors, encouraged another bank to participate in the lines of credit, recommended the cattle company to other bank customers and required the cattle company owner to take particular actions to get a loan approved. See id. The Eighth Circuit noted that "simply because a bank allows a heavily indebted customer to take actions such as overdrafts and late note payments that the bank might prevent by exercising its formidable rights as creditor is not evidence that the bank controlled the customer's operations and management." Id. (emphasis
The court finds that Plaintiffs have failed to make the requisite showing that Enterprise directed the operation or management of the association-in-fact enterprise. The court notes that on October 31, 2011, it dismissed Count I of the Amended Complaint (docket no. 40) against Enterprise, finding that Plaintiffs failed to allege "that Enterprise participated in the operation or management" of the RICO enterprise. October 31, 2011 Order (docket no. 220) at 31. In the October 31, 2011 Order, the court noted that the Amended Complaint alleged, with respect to Enterprise's participation in the RICO enterprise, that:
Id. at 30. The court went on to find that, "[a]lthough these allegations are troublesome, they do not suggest that Enterprise directed the operation or management of [the alleged RICO enterprise]." Id. The court granted Plaintiffs leave to amend the Amended Complaint and, on January 1, 2012, Plaintiffs filed a Second Amended Complaint (docket no. 252). On September 12, 2012, Plaintiffs filed a Third Amended Complaint (docket no. 420) and, on October 11, 2012, Plaintiffs filed the instant Complaint. In each of these amended complaints, Plaintiffs realleged Count I against Enterprise. However, the court finds that Plaintiffs have still failed to show that Enterprise participated in the operation or management of the enterprise. Plaintiffs have not alleged any additional facts supporting their assertion that Enterprise was sufficiently involved with the enterprise's affairs to impose liability under § 1962(c), beyond those alleged in the Amended Complaint. Plaintiffs claim that Enterprise was willfully ignorant of the criminal nature of the BLP and that Enterprise actively worked to conceal the true state of the BLP from Plaintiffs. These allegations, if true, suggest that Enterprise may have assisted with the enterprise; however, such allegations do not show that Enterprise was involved in the operation or management of the enterprise. See Dahlgren, 533 F.3d at 689-90 (finding that, even in light of the plaintiffs' allegations that the defendant-bank induced the plaintiffs to invest with the alleged RICO enterprise by concealing the enterprise's financial weakness, the bank acted as "a creditor conducting its own affairs," with one exception, and, thus, the allegations were not sufficient to conclude that the bank was engaged in the operation or management of the enterprise).
In addition, the Statement of Material Facts in Support of Enterprise's Motion
In light of the foregoing, the court finds that there is no genuine issue of material fact as to whether Enterprise is liable under 18 U.S.C. § 1962(c). The court finds that Plaintiffs' claim against Enterprise in Count I fails because: (1) Plaintiffs have not shown the existence of a RICO enterprise because the alleged association-in-fact enterprise has no ascertainable structure distinct from the alleged racketeering activities; and (2) Plaintiffs have not shown that Enterprise participated in the operation or management of the alleged RICO enterprise.
In Count II of the Complaint, Plaintiffs allege that Enterprise conspired to violate RICO, 18 U.S.C. § 1962(c), in violation of 18 U.S.C. § 1962(d). In Enterprise's Motion, Enterprise argues that the court should grant summary judgment in its favor on Count II because "there is no evidence that [Enterprise] knew of the alleged conspiracy to operate a Ponzi scheme, nonetheless any evidence that [Enterprise] agreed to join the conspiracy." Brief in Support of Enterprise's Motion at 9. Enterprise further contends that "[o]ne cannot negligently or unknowingly join a RICO conspiracy" and, therefore, a showing of willful blindness is not sufficient to satisfy Plaintiffs' burden. Id. at 10. Additionally, Enterprise's argument with respect to Count I, that a proper RICO enterprise did not exist, is also relevant to Count II.
In the Resistance to Enterprise's Motion, Plaintiffs argue that Enterprise was willfully blind to the affairs of the enterprise and, thus, Enterprise had the requisite knowledge to establish a conspiracy. Further, Plaintiffs contend that they have alleged a proper RICO enterprise.
Pursuant to 18 U.S.C. § 1962(d), it is "unlawful for any person to conspire to violate any of the provisions of subsection
As discussed above, the court finds that Plaintiffs have failed to show the existence of a RICO enterprise with a "structure distinct from that inherent in a pattern of racketeering." Atlas Pile Driving Co., 886 F.2d at 995. Because a showing of the existence of a RICO enterprise is a necessary element of a claim under 18 U.S.C. § 1962(d) as well as 18 U.S.C. § 1962(c), the court finds that Plaintiffs cannot prove that Enterprise conspired to violate 18 U.S.C. § 1962(c). In light of this finding, the court finds it unnecessary to address the parties' additional arguments with respect to Count II. See Nolte, 994 F.2d at 1317. Accordingly, the court shall grant Enterprise's Motion to the extent that it requests that the court grant summary judgment in Enterprise's favor on Count II.
In Count III of the Complaint, Plaintiffs allege that Enterprise breached Sections 1, 4, 5 and 26 of the Custody Agreements "by not providing safekeeping of IRA assets," Complaint ¶ 251; distributing Plaintiffs' IRA funds without receiving instruction from Plaintiffs to do so; taking instruction from Sigillito regarding the distribution of Plaintiffs' IRA funds; paying for the Distinctive Properties notes prior to receipt of any loan agreement; and failing to buy and sell assets through a "brokerage firm," Thomas Currier Custody Agreement at 7, for accounts with a designated investment advisor.
Section 1 of the Custody Agreements provides that Enterprise "agrees to hold and keep safely all securities and other property ... which Customer shall elect to deposit in the Account." Id. at 1. "[T]hereafter[,] [Enterprise] shall be responsible for such Assets only until such time as they have been transmitted to and received by another person or entity...." Id.
Section 4 of the Custody Agreements provides, in relevant part, that "Enterprise... shall make distributions from the Account as directed, in writing, by customers." Id. at 2. Plaintiffs contend that, pursuant to Section 4, "Enterprise could
Section 5 of the Custody Agreements provides:
Thomas Currier Custody Agreement at 2.
Section 26 of the Custody Agreements provides an optional space for the Customer to designate a broker or investment advisor, upon whose instruction Enterprise "is directed to accept and to fully rely upon ... with respect to the purchase and sale of, and other transactions in securities,... with the brokerage firm of Investment Advisor's choosing, and no further authorization by Customer shall be required." Thomas Currier Custody Agreement at 7.
Under Missouri law, in order to allege breach of contract, a plaintiff must show: "(1) the making and existence of a valid and enforceable contract between [the plaintiff] and [the defendant]; (2) the right of [the plaintiff] and the obligation of [the defendant] thereunder; (3) a violation thereof by [the defendant]; and (4) damages resulting to [the plaintiff] from the breach." Trotter's Corp. v. Ringleader Rests., Inc., 929 S.W.2d 935, 941 (Mo.Ct. App.1996); see also Keveney v. Mo. Military Acad., 304 S.W.3d 98, 104 (Mo.2010) (en banc) (listing the essential elements of a breach of contract claim).
"General principles of contract law impose a causation requirement on the recovery of damages." Monarch Fire Prot. Dist. of St. Louis Cnty., Mo. v. Freedom Consulting & Auditing Servs., Inc., 678 F.Supp.2d 927, 941-42 (E.D.Mo.2009) (applying Missouri law to a breach of contract claim); see also Abbott v. Haga, 77 S.W.3d 728, 733 (Mo.Ct.App.2002) (holding that a breach of contract claim failed when the respondent could not prove that his damages resulted from the appellant's breach). Under a breach of contract, the breaching party is liable for "damages naturally and proximately caused by the breach." Guidry v. Charter Commc'ns, Inc., 269 S.W.3d 520, 533 (Mo.Ct.App. 2008); see also Gateway W. Ry. Co. v. Morrison Metalweld Process Corp., 46 F.3d 860, 862 (8th Cir.1995) (noting that under Missouri contract law, the doctrine of proximate cause limits the breaching party's liability). "Proximate cause is a question of fact for the jury" and a "plaintiff must be able to show by clear, admissible evidence the connection between the alleged breach and identifiable, provable damages." Howard O. Hunter, Modern Law of Contracts § 14:7 (2013); see also In re Genetically Modified Rice Litig., Nos. 4:06MD1811 CDP, 4:07CV1211 CDP, 2010 WL 1186567, at *2 (E.D.Mo. Mar. 29, 2010) ("Proximate cause is typically a question of fact for the jury.").
The Missouri Court of Appeals addressed the causation element of a breach of contract claim in Equity Mutual Insurance Co. v. Affiliated Parking, Inc., 448 S.W.2d 909 (Mo.Ct.App.1969). In that case, an insurance company asserted a breach of contract claim against the defendant, a parking lot operator. Id. at 910. The defendant leased the property that the parking lot sat on from the City of St. Louis. Id. The defendant and the City
"The cardinal principle for contract interpretation is to ascertain the intention of the parties and to give effect to that intent." Butler v. Mitchell-Hugeback, Inc., 895 S.W.2d 15, 21 (Mo.1995) (en banc). "`In determining the intent of the parties to a contract, [the court] review[s] the terms of a contract as a whole, not in isolation.'" Lacey v. State Bd. of Registration for the Healing Arts, 131 S.W.3d 831, 838 (Mo.Ct.App.2004) (quoting Tuttle v. Muenks, 21 S.W.3d 6, 11 (Mo.Ct.App. 2000)).
Liberty Mut. Fire Ins. Co. v. Centimark Corp., No. 4:08CV230-DJS, 2009 WL 1588454, at *3 (E.D.Mo. June 5, 2009) (internal citations altered).
In Enterprise's Motion, Enterprise argues that the court should grant summary judgment in its favor with respect to Count III for several reasons. First, Enterprise claims that it did not violate its obligation to "safekeep" in Section 1 of the Custody Agreements — a limited duty that does not require Enterprise "to advise plaintiffs [of] risks or prevent loss." Brief in Support of Enterprise's Motion at 24. Second, Enterprise argues that it complied
In the Resistance to Enterprise's Motion, Plaintiffs claim that Enterprise breached the Custody Agreements because Enterprise transferred Plaintiffs' money to Sigillito's IOLTA account without authorization from Plaintiffs and without confirmation that the money went to Distinctive Properties. In addition, Plaintiffs claim that Enterprise made distributions at the direction of Sigillito, rather than Plaintiffs, in violation of Section 4 of the Custody Agreements, regardless of whether the particular Custody Agreement listed Sigillito as the investment advisor.
Enterprise contends that it is entitled to summary judgment on Count III because Plaintiffs have not shown that any alleged breach by Enterprise caused Plaintiffs' damages. However, causation with respect to a breach of contract claim is generally a question of fact for the jury. See In re Genetically Modified Rice Litig., 2010 WL 1186567, at *2. Thus, the court finds Enterprise's causation argument is premature. In addition, Plaintiffs' allegations, if true, suggest that Enterprise played an integral role in the scheme. Without a legitimate IRA custodian, the scheme would not have operated as effectively as it did or for as long as it did. Thus, the court finds there is a genuine issue of material fact with respect to whether Enterprise's alleged participation in the scheme and alleged breach of the Custody Agreements caused Plaintiffs' damages.
Next, the court shall consider whether a genuine issue of material fact exists as to whether Enterprise breached any of its duties under the Custody Agreements. The parties discuss at great length whether Enterprise breached Section 4, which provides that Enterprise "shall make distributions from the Account as directed, in writing, by customers." Thomas Currier Custody Agreement at 2. As Enterprise points out, "[t]he terms of a contract are read as a whole to determine the intention of the parties and are given their plain, ordinary, and usual meaning. Each term of a contract is construed to avoid rendering other terms meaningless." Brief in Support of Enterprise's Motion at 24 (quoting June 26, 2012 Order, 877 F.Supp.2d 763, 768 (E.D.Mo.2012)) (internal quotation marks omitted). Thus, the court cannot consider Section 4 in isolation but, rather, must consider it in the context of the Custody Agreement as a whole.
Section 26 is particularly relevant to the court's analysis of whether Enterprise breached Section 4 with respect to Plaintiffs
Plaintiffs state that Section 26 does not alter the analysis of whether Enterprise breached Section 4 because Section 26 allows Enterprise to follow instructions from an investment advisor with respect to "what to buy" but Section 4 still directs Enterprise to follow instructions from the Customer regarding "how to buy." Resistance to Enterprise's Motion at 10. However, Section 26 requires Enterprise to rely on all instructions from a designated investment advisor "with respect to the purchase and sale of, and other transactions in securities." Thomas Currier Custody Agreement at 7. Section 26 does not indicate that Enterprise can rely on such instructions only with respect to what to buy.
The Sixth Circuit Court of Appeals addressed a customer's breach of contract claim pertaining to a custody agreement that the customer entered into with the defendant-bank in Pavlovich v. National City Bank, 435 F.3d 560 (6th Cir.2006). The custody agreement at issue in Pavlovich "required the [b]ank to `be responsible for the safekeeping of' [the plaintiff's] investment assets entrusted to the [b]ank" and provided that "[t]he Custodian may... rely and act upon any written direction delivered to it ... if purported to have been signed by [the plaintiff] or by any one or more persons specifically authorized in writing by [the plaintiff]." Id. at 565. The plaintiff executed a trading letter concurrently with the custody agreement, providing an investment advisor with "`sole trading authority' over her `Fixed Income Account' and required the [b]ank `to accept all trades from [the investment advisor] unless notified to the contrary.'" Id. The plaintiff argued that the bank breached the custody agreement by following the plaintiff's designated investment advisor's instructions to use the plaintiff's money to purchase the promissory notes of a company that ultimately went bankrupt in a scheme that cost the plaintiff "roughly a million-and-a-half dollars." Id. at 564. The Sixth Circuit affirmed the district court's grant of summary judgment in favor of the bank because it found that the bank did not breach the custody agreement when it followed the instructions of the investment advisor. Id. at 566
The court finds that it is unlikely that Enterprise breached Section 4 with respect to Plaintiffs who designated Sigillito as their investment advisor in Section 26. However, the court finds it unnecessary to determine which Custody Agreements, if any, Enterprise may have breached with respect to Section 4 at this point in light of the court's conclusion below that a genuine issue of material fact exists as to whether Enterprise breached Section 5 of the Custody Agreements.
Section 5 provides that, upon "receipt of Instructions, Enterprise ... shall purchase additional securities" and shall charge the account the cost of the securities purchased plus additional costs associated with the purchase. Thomas Currier Custody Agreement at 2. In addition, Section 5 provides that "[s]uch payment shall be made only upon receipt by Enterprise... of the securities so purchased." Id. The parties do not discuss Section 5 with respect to Enterprise's Motion. In its Resistance to Plaintiffs' Motion, however, Enterprise argues that it did not breach Section
The court finds that this argument does not foreclose Plaintiffs' assertion that Enterprise breached Section 5. The definition of a security that Enterprise articulates in its Resistance to Plaintiffs' Motion is extremely narrow. However, there is nothing in the Custody Agreement indicating that the reference to "securities" therein was intended to refer only to marketable securities, "such as stocks and bonds that are publicly traded," id., and not to the standard definition of a security articulated by the Securities Act of 1933, 15 U.S.C. § 77b, and the Securities Exchange Act of 1934, 15 U.S.C. § 78c, and as interpreted by federal courts. See SEC v. W.J. Howey Co., 328 U.S. 293, 298-99, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946) (providing that an "investment contract," included in the definition of a security under the Securities Act, "means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or third party"). In W.J. Howey Co., the Supreme Court found an "investment contract" and, thus, a security, present where promoters sold acreages of fruit trees with "service contracts" to cultivate and market the fruit, with a portion of the net profits going to the purchaser. Id. at 300, 66 S.Ct. 1100. The Supreme Court stated that this definition "embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits." Id. at 299, 66 S.Ct. 1100.
Contrary to Section 5, the evidence suggests that Enterprise received the Distinctive Properties notes a significant period of time after purchase. Statement of Material Facts in Support of Plaintiffs' Motion at 33 (providing examples of Plaintiffs whose Distinctive Properties notes were received a significant period of time after Enterprise purchased the notes). Thus, the court finds that a genuine issue of material fact exists with respect to whether Enterprise breached Section 5 of the Custody Agreements and, thus, whether Enterprise is liable under Count III of the Complaint. Accordingly, the court shall deny Enterprise's Motion to the extent that it requests that the court grant summary judgment in Enterprise's favor on Count III.
In Plaintiffs' Motion, Plaintiffs argue that the court should grant summary judgment in their favor with respect to Count III because Enterprise breached: (1) Section 4 of the Custody Agreements because Enterprise made distributions from Plaintiffs' accounts without instruction from Plaintiffs; (2) Section 5 of the Custody Agreements because Enterprise purchased securities without receipt of instruction from Plaintiffs and before receiving a loan agreement; and (3) Section 26 of the Custody Agreements because Enterprise failed to buy and sell assets through a
In the Resistance to Plaintiffs' Motion, Enterprise contends that summary judgment in Plaintiffs' favor is not appropriate because: (1) Plaintiffs have not shown that Enterprise's alleged breach of the Custody Agreements caused Plaintiffs' damages; and (2) Enterprise did not breach the Custody Agreements. Specifically, Enterprise argues that it did not breach Section 4 of the Custody Agreements because "the Distinctive Properties notes were investments in an IRA account — not distributions to the customer — and, therefore, did not require written instructions from the customer" pursuant to Section 4. Resistance to Plaintiffs' Motion at 6. Additionally, Enterprise argues that any action it took based on instructions from Sigillito were justified and did not constitute a breach of the Custody Agreements.
Enterprise contends that it did not breach Section 5 of the Custody Agreements because that section applies to marketable securities, and the Distinctive Properties notes are "non-marketable, unique assets," which are governed by Section 9 of the Custody Agreement. Section 9 provides that "the term `Instructions' shall mean written ... or oral ... Instructions to Enterprise ... which Enterprise... reasonably believes to have been transmitted by the Customer or by any Investment Advisor." Thomas Currier Custody Agreement at 3.
Enterprise claims that it complied with Section 9 of the Custody Agreements with respect to Plaintiffs who designated Sigillito as their investment advisor because such designation justified Enterprise's reliance on Sigillito's instructions. With respect to Plaintiffs who did not designate Sigillito as their investment advisor, Enterprise argues that it was still justified in relying on Sigillito's instructions because: (1) "several ... Plaintiffs have admitted that, even though they [did not designate Sigillito as their investment advisor], they believed that Sigillito was authorized to act as their [i]nvestment [a]dvisor," Resistance to Plaintiffs' Motion at 8; (2) Section 9 allows Enterprise to rely on instructions that it "reasonably believes to have been transmitted by the [Plaintiff] or any [designated] [i]nvestment [a]dvisor," id. (emphasis omitted); and (3) Plaintiffs ratified Enterprise's reliance on Sigillito's instructions.
The court finds that summary judgment in favor of Plaintiffs on Count III is not appropriate because Plaintiffs do not establish liability or causation for each individual Plaintiff. Rather, Plaintiffs make generalized statements with respect to Enterprise's alleged breach of the Custody Agreements. Plaintiffs claim that they "filed a motion for partial summary judgment on liability only. Plaintiffs will prove damages and causation at trial." Reply to Enterprise's Resistance to Plaintiffs' Motion at 4. However, a necessary element to show that Enterprise breached the Custody Agreements is a showing of "damages resulting to [Plaintiffs] from [Enterprise's] breach." Trotter's Corp., 929 S.W.2d at 941. Thus, Plaintiffs' assertion that the court could grant summary judgment in their favor on a breach of contract claim without a showing of causation is without merit. Because Plaintiffs have failed to show each element of a breach of contract claim for each Plaintiff, the court finds that summary judgment in Plaintiffs' favor on Count III is not appropriate and shall deny Plaintiffs' Motion to the extent that it requests that the court grant summary judgment in Plaintiffs' favor on Count III. The court notes that the analysis of Count III may not be identical for each Plaintiff — particularly for those who designated Sigillito as their investment advisor. In
In Count IV of the Complaint, Plaintiffs allege that Enterprise was negligent in providing the services it agreed to perform in the Custody Agreements. Specifically, Plaintiffs contend that, pursuant to the Custody Agreements, Enterprise owed Plaintiffs "the duty to use such skill, prudence and diligence as other IRA Custodians commonly exercise for the safekeeping of the [lenders'] IRA assets. This includes the duty to prevent prohibited transactions, conflicts of interest, and inside dealings." Complaint ¶ 256.
"In Missouri, the elements that must be proven in order for a party to recover for negligence are: (1) the existence of a legal duty owed to the plaintiff; (2) breach of that duty through a negligent act by the defendant; (3) proximate causation between the breach and the resulting injury; and (4) resulting damages." MEMC Elec. Materials, Inc. v. Sunlight Grp., Inc., No. 4:08CV00535 FRB, 2008 WL 4642866, at *4 (E.D.Mo. Oct. 17, 2008) (citing Petrol Props., Inc. v. Stewart Title Co., 225 S.W.3d 448, 455 (Mo.Ct.App. 2007)). "Missouri courts ... `do not recognize degrees of negligence and therefore do not distinguish between negligence and gross negligence.'" Resolution Trust Corp. v. Gershman, 829 F.Supp. 1095, 1101 (E.D.Mo.1993) (quoting Duncan v. Mo. Bd. for Architects, Prof'l Eng'rs & Land Surveyors, 744 S.W.2d 524, 532 (Mo.Ct.App. 1988)).
"A legal duty owed by one to another may arise ... because a party has assumed a duty by contract or agreement." Hackmann v. Mo. Am. Water Co., 308 S.W.3d 237, 239 (Mo.Ct.App.2009). "The law imposes upon a person who provides services the duty to render those services with `some degree of care and skill.'" Tom's Agspray, LLC v. Cole, 308 S.W.3d 255, 261 (Mo.Ct.App.2010) (quoting Hoover's Dairy, Inc. v. Mid-Am. Dairymen, Inc./Special Prods., Inc., 700 S.W.2d 426, 432 (Mo.1985) (en banc)). "Whether a duty exists is a question of law, but conclusions about the facts of the case are questions for the fact-finder." Id. at 261-62.
When applying Missouri law to a situation involving both negligence and breach of contract, the Eighth Circuit has held that, "[u]nder Missouri law, a breach of contract alone does not give rise to a tort. The Missouri courts have recognized a distinction between negligence and nonperformance of a contract obligation." Pippin v. Hill-Rom Co., 615 F.3d 886, 889 (8th Cir.2010). "A mere failure to complete the undertaking required by contract does not give rise to a cause of action in tort; the remedy for such a failure lies in contract." Id. Under such a circumstance, a plaintiff must show "negligent misfeasance, such as `the failure to exercise due care in the performance of contract undertakings, as distinguished from mere failure to complete such undertakings.'" Id. (quoting Preferred Physicians Mut. Mgmt. Grp. v. Preferred Physicians Mut. Risk Retention, 918 S.W.2d 805, 814 (Mo. Ct.App.1996)).
An action for professional negligence exists where, in the context of the contractual relationship, the professional negligently discharges the duties arising from that relationship. See Lumbermens Mut. Cas. Co. v. Thornton, 92 S.W.3d 259, 265 (Mo.Ct.App.2002). "A professional
"In professional negligence cases,... the specific duty is defined by the profession, itself." Ostrander v. O'Banion, 152 S.W.3d 333, 338 (Mo.Ct.App.2004). Thus, "an expert witness is generally necessary to tell the jury what the defendant should or should not have done under the particular circumstances" and whether the defendant's actions "violated the standards of care of the profession" and, thereby, constituted negligence. Id.; see also Parra v. Bldg. Erection Servs., 982 S.W.2d 278, 285 (Mo.Ct.App.1998) ("In cases of alleged `professional' negligence, with some exceptions, expert testimony is required to establish the proof element of a breach of duty."); Brennan v. St. Louis Zoological Park, 882 S.W.2d 271, 273 (Mo. Ct.App.1994) ("In a professional malpractice case, the plaintiff must present the testimony of a qualified professional as to the degree of care and skill that is generally accepted by those engaged in the profession. Absent such testimony, the plaintiff cannot make a submissible case and is not entitled to recovery." (citation omitted)).
Missouri courts have found an exception to this general rule requiring expert testimony in professional negligence cases where the alleged negligence is "clear and palpable." Roberts v. Sokol, 330 S.W.3d 576, 581 (Mo.Ct.App.2011) ("[I]n order to escape the requirement of expert testimony, the alleged negligence or the question of negligence, must be clear and palpable to a jury of laymen.").
In Pedigo v. Roseberry, 340 Mo. 724, 102 S.W.2d 600 (1937), the Missouri Supreme Court explained why expert testimony is necessary in some negligence actions:
Id. at 607; see also Roberts, 330 S.W.3d at 581, 581 n. 4 (stating that expert testimony is not necessary in a medical or legal malpractice case where the negligence is "clear and palpable," such as "where a lawyer allows the statute of limitations to expire on a claim which had been entrusted to him for prosecution"); cf. Annen v. Trump, 913 S.W.2d 16, 22 (Mo.Ct.App. 1995) (holding that expert testimony was required to establish the standard of care for supervision of the installation of a roof and, thus, because the plaintiff failed to offer any expert testimony on the issue, the plaintiff failed to make a submissible case); Pasta House Co. v. Williams, 833 S.W.2d 460, 462 (Mo.Ct.App.1992) (holding that the plaintiff failed to make a submissible professional negligence claim against an engineering firm and a professional surveying firm because the plaintiff did not present expert testimony on the standard of care required by an engineer and a surveyor).
In Enterprise's Motion, Enterprise argues that the court should grant summary judgment in its favor on Count IV because Plaintiffs have not designated an expert witness who will establish the applicable
In the Resistance to Enterprise's Motion, Plaintiffs contend that the Custody Agreement, Enterprise's policy manual for the Trust Department, see Enterprise Trust Policy Manual (docket no. 631-7 at 68-120; docket no. 631-8), and the Bank Secrecy Act/Anti-Money Laundering Manual establish the applicable standard of care in this case. Plaintiffs further argue that expert testimony is not required to prove that Enterprise acted negligently because "[a] layperson could easily understand the concept that Enterprise could not transfer funds without written authorization" and "in clear cases[,] expert testimony is unnecessary." Resistance to Enterprise's Motion at 16.
At the outset, the court finds that Plaintiffs' argument that the Enterprise Trust Policy Manual and the Bank Secrecy Act/Anti-Money Laundering Manual establish the applicable standard of care in this case is without merit. Plaintiffs fail to cite any courts recognizing a duty arising from a company's internal policies or the Bank Secrecy Act and numerous courts have rejected such an argument. See Luscombe v. Mo. State Bd. of Nursing, ___ S.W.3d ___, ___, No. WD 75049, 2013 WL 68899, at *8 (Mo.Ct.App. Jan. 8, 2013) ("The standard of care applicable to professional conduct cannot be established by a hospital's rules and regulations, and even if it could, mere violation of a hospital rule or regulation does not establish a violation of the standard of care without expert testimony regarding whether the factual explanation for the violation is outside the standard of care."); Pub. Serv. Co. of Okla. v. A Plus, Inc., No. Civ-10-651-D, 2011 WL 3329181, at *8 (W.D.Okla. Aug. 2, 2011) (noting that "[c]ourts have repeatedly rejected negligence claims based on a bank's duty under the [Bank Secrecy Act]"); Armstrong v. Am. Pallet Leasing Inc., 678 F.Supp.2d 827, 874-75 (N.D.Iowa 2009) (rejecting the plaintiffs' argument that the requirements under the Bank Secrecy Act imposed a duty of care on the defendant-bank); Marlin v. Moody Nat'l Bank, N.A., No. H-04-4443, 2006 WL 2382325, at *7 (S.D.Tex. Aug. 16, 2006) ("[The Bank Secrecy Act] does not create a private right of action and, therefore, does not establish a standard of care."); Aiken v. Interglobal Mergers & Acquisitions, No. 05 Civ. 5503(LAP), 2006 WL 1878323, at *2 (S.D.N.Y. July 5, 2006) (noting that the Bank Secrecy Act does not afford a private right of action, and the court may not "impose a duty of care based upon a statute that does not permit a private right of action"). Thus, Plaintiffs cannot rely on Enterprise's internal policies or the Bank Secrecy Act to establish the standard of care.
Enterprise relies on the analysis in Steward, III v. Wells Fargo Bank, N.A., No. 10-469 (MJD/FLN), 2011 WL 3207037 (D.Minn. June 10, 2011), adopted, 2011 WL 3206912 (D.Minn. July 28, 2011), to support its argument that the court should grant summary judgment in its favor with respect to Count IV. In Steward, III, the plaintiff, a Wells Fargo Bank, N.A. ("Wells Fargo") checking account holder, brought claims against Wells Fargo asserting conversion, defamation, libel, breach of banker's duty of confidentiality and negligence when the plaintiff deposited a $9,200 check into his Wells Fargo checking account and spent nearly all of the deposited money before the check was returned to its maker for forgery. Id. at *1. Wells Fargo charged the plaintiff's account $9,200, resulting in a negative balance. Id. Wells Fargo reported that the plaintiff's "account
Plaintiffs have presented no evidence to define the relevant standard of care of a reasonably competent IRA custodian. Plaintiffs assert that expert testimony is not necessary to establish the standard of care in this case because "in clear cases[,] expert testimony is unnecessary." Resistance to Enterprise's Motion at 16. The court disagrees. The duties owed by an IRA custodian bank are beyond the knowledge of a layperson. See Pedigo, 102 S.W.2d at 607. Furthermore, this is not a case where the alleged negligence constitutes "clear and palpable" negligence. Roberts, 330 S.W.3d at 581. Enterprise's allegedly negligent acts are not comparable to, for example, a lawyer allowing a statute of limitations to expire. See id. at 581 n. 4. Thus, Missouri law requires expert testimony to establish the applicable standard of care in a negligence claim such as this one. See Annen, 913 S.W.2d at 22; Pasta House Co., 833 S.W.2d at 462. Because Plaintiffs will be unable to establish the applicable standard of care at trial, the court finds that there is no genuine issue of material fact as to Count IV. Accordingly, the court shall grant Enterprise's Motion to the extent that it requests that the court grant summary judgment in Enterprise's favor on Count IV.
In Plaintiffs' Motion, Plaintiffs argue that Section 12 of the Custody Agreements, which provides that Enterprise shall not be liable to Plaintiffs unless it engages in "gross negligence or willful misconduct," Thomas Currier Custody Agreement at 3, establishes the existence of a legal duty that Enterprise owed to Plaintiffs in carrying out its obligations under the Custody Agreements.
In its Resistance to Plaintiffs' Motion, Enterprise contends that it did not owe Plaintiffs a duty independent of its contractual obligations and that Plaintiffs' negligence claim fails as a matter of law because Plaintiffs have failed to designate an expert witness to establish the relevant standard of care.
In light of the court's finding above that Plaintiffs' failure to designate an expert witness to testify to the relevant standard of care is fatal to their claims in Count IV, the court finds that it is not necessary to address the parties' specific arguments with respect to Plaintiffs' Motion. Thus, because the court shall grant summary
In light of the foregoing,
E.D.Mo. L.R. 4.01(E); see also Fed.R.Civ.P. 56(e) ("If a party ... fails to properly address another party's assertion of fact ... the court may ... consider the fact undisputed for purposes of the motion [or] grant summary judgment if the motion and supporting materials — including the facts considered undisputed — show that the movant is entitled to it.").
Given the court's repeated emphasis on following the relevant procedural rules, the court shall consider all of the facts set forth in the Statement of Material Facts in Support of Enterprise's Motion to be undisputed when addressing the merits of the claims.
