Filed: Sep. 22, 2010
Latest Update: Feb. 21, 2020
Summary: MéNDEZ INTERNET MANAGEMENT SERVICES, INC.; GILBERTO ARVELO;1, The banks named as defendants were Banco Santander de Puerto, Rico, Banco Popular de Puerto Rico, Doral Bank, RG Premier Bank of, Puerto Rico, and Westernbank of Puerto Rico.The complaint also fails to state a claim under the BHCA.
United States Court of Appeals
For the First Circuit
No. 09-1874
MÉNDEZ INTERNET MANAGEMENT SERVICES, INC.; JAMES MÉNDEZ,
Plaintiffs, Appellants,
v.
BANCO SANTANDER DE PUERTO RICO; BANCO POPULAR DE PUERTO RICO;
DORAL BANK; RG PREMIER BANK OF PUERTO RICO; WESTERNBANK OF PUERTO
RICO; GILBERTO ARVELO; DOCTORSHOPER.COM, INC.,*
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. José Antonio Fusté, U.S. District Judge]
Before
Boudin, Selya and Gajarsa,**
Circuit Judges.
Nicolás Nogueras-Cartagena, Julio C. Alejandro-Serrano and
Office of Nicolás Nogueras-Cartagena on brief for appellants.
Eduardo A. Zayas-Marxuach, Alejandro J. Cepeda-Díaz, McConnell
Valdés LLC, Néstor J. Navas-D'Acosta, Navas & Rodríguez, P.S.C.,
Harold D. Vicente-Colón and Vicente & Cuebas on brief for appellees
Banco Popular de Puerto Rico, Inc., Banco Santander Puerto Rico,
and Doral Bank.
*
By order of the court, Federal Deposit Insurance Corporation
was substituted for RG Premier Bank of Puerto Rico and Westernbank
of Puerto Rico.
**
Of the Federal Circuit, sitting by designation.
Sonia B. Alfaro-de la Vega and Law Offices of Gilberto Oliver
on brief for appellee RG Premier Bank of Puerto Rico.
September 22, 2010
BOUDIN, Circuit Judge. James Méndez and Méndez Internet
Management Services, Inc. (collectively "Méndez") appeal from the
dismissal of their claims against five banks1 and against Gilberto
Arvelo and his website doctorshoper.com, described as a consumer
watchdog service (collectively "Arvelo"). Because the case was
disposed of in the district court on a motion to dismiss, Fed. R.
Civ. P. 12(b)(6), our review is de novo, and we accept the factual
allegations of the operative amended complaint, Rule v. Fort Dodge
Animal Health, Inc., 607 F.3d 250, 251-52 (1st Cir. 2010).
Based in Puerto Rico, Méndez sells Iraqi dinars
("dinars"), the official Iraqi currency. According to the
complaint, between September 2007 and August 2008, a number of
banks in Puerto Rico closed or refused to open accounts for Méndez.
Most objected to serving money services businesses ("MSBs") or
stated related administrative reasons, including "the sheer volume
of transactions." The banks, Méndez says, also
have conditioned the opening and continuation
of regular checking accounts, lines of credit,
savings accounts and all other regular bank
services . . . upon plaintiff not depositing
or withdrawing from any such bank account or
credit lines, United States of America
currency or legal tender money derived from
the sale of . . . dinars.
1
The banks named as defendants were Banco Santander de Puerto
Rico, Banco Popular de Puerto Rico, Doral Bank, RG Premier Bank of
Puerto Rico, and Westernbank of Puerto Rico. The Federal Deposit
Insurance Corporation ("FDIC") has since substituted itself for RG
Premier Bank and Westernbank. FirstBank Puerto Rico is named in
the complaint, but is not a defendant.
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In the same time frame, Arvelo (according to the
complaint) published critical comments and articles on his website
and also made unspecified public statements about Méndez' sale of
dinars in Puerto Rico, which Méndez claims have prompted closures
of his accounts as well as government oversight of his business.
Arvelo's postings apparently suggest that the dinars are
counterfeit; that Méndez has been operating illegally; that the
general sale of Iraqi dinars is illegal; and that "the sale of
dinars [is] not a legitimate business accepted by banking
institutions."
On October 2, 2008, Méndez brought suit in federal
district court in Puerto Rico against the named banks and Arvelo,
seeking $14 million plus treble damages. He alleged three federal
causes of action based respectively on the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (2006), the
Sherman Act, 15 U.S.C. § 1 (2006), and the Bank Holding Company Act
("BHCA"), 12 U.S.C. § 1972(1)(E) (2006). The complaint also
included claims of abuse of right and defamation under Puerto Rico
law.
Banco Popular de Puerto Rico filed a motion to dismiss
the federal causes of action for failure to state a claim, which
was joined by the other defendants. The district court dismissed
the three federal claims on the merits, and declined to exercise
supplemental jurisdiction over the Puerto Rico claims, dismissing
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them without prejudice. Méndez Internet Mgmt. Servs., Inc. v.
Banco Santander de Puerto Rico, Civil No. 08-2140, 2009 WL 1392189,
at *6 (D.P.R. May 15, 2009).
Méndez now appeals from the dismissal of the RICO and
BHCA claims; he ignores his Sherman Act claim, which is thus
abandoned. Our review, as already noted, is de novo, and is
informed by recent Supreme Court decisions that require in a
complaint "more than labels and conclusions" and stress that "a
formulaic recital of the elements of a cause of action will not
do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); see
also Ashcroft v. Iqbal,
129 S. Ct. 1937, 1953 (2009) (holding
Twombly to apply to all civil actions).
To read through Méndez' complaint and opening brief (he
filed no reply) and the answering briefs of the banks (Arvelo has
remained silent) is to be left initially in a state of puzzlement.
The banks do not deny that they have refused to provide Méndez with
accounts for his dinar business, but do not trouble to explain why;
Méndez alleges conspiracy, seemingly among the banks and clearly
between Arvelo and the banks, also without explaining why the banks
or Arvelo have any motive to cooperate or to undermine him.
Yet modest research among public documents provides some
enlightening information about the phase of the case that involves
the banks. It turns out that the USA PATRIOT Act of 2001, Pub. L.
No. 107-56, 115 Stat. 272 (codified in scattered sections of the
-5-
U.S.C.), amended the Bank Secrecy Act ("BSA"), 31 U.S.C. §§ 5311-
5330 (2006), in ways that imposed more stringent requirements aimed
at money laundering.
One consequence has been several high-profile criminal
cases brought against banks doing business with MSBs, including one
of the bank defendants in the case before us.2 Given these cases
and general uncertainty about regulation under the amended BSA,
many banks believe they could bear responsibility for the BSA
compliance of MSB customers despite statements to the contrary from
the Office of the Comptroller of the Currency. Bank Secrecy Act's
Impact on Money Services Businesses: Hearing Before the Subcomm. on
Fin. Insts. & Consumer Credit of the H. Comm. on Fin. Servs., 109th
Cong. 20 (2006) (statements of Rep. Jeb Hensarling & Ann F.
Jaedicke, Deputy Comptroller for Compliance Policy, Office of the
Comptroller of the Currency).
Unsurprisingly banks have increasingly shunned risky
entanglement with MSBs. At a House hearing in 2006 it was noted
that "[o]ver the past year, at least three national banks have
ceased offering services to MSB's, and some State-chartered
2
In January 2003, Banco Popular "forfeited $21.6 million . .
. and entered into a deferred prosecution agreement with the
Justice Department in a case involving a single count of failing to
file a SAR [suspicious activity report] on an MSB customer in
violation of the BSA." An Update on Money Services Businesses
Under Bank Secrecy and USA PATRIOT Regulation: Hearing Before the
S. Comm. on Banking, Housing & Urban Affairs, 109th Cong. 47 (2005)
(prepared statement of Julie L. Williams, Acting Comptroller of the
Currency).
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institutions have also discontinued service, and this is across-
the-board blanket discontinuance by these institutions of all
MSB's." Id. at 2 (statement of Rep. Spencer Bachus, Chairman, H.
Subcomm. on Fin. Insts. & Consumer Credit). Similarly, a 2009 bill
proposed congressional findings that, due to regulatory guidance
and expectations of federal banking agencies and the Secretary of
the Treasury,
many insured depository institutions have
refused or closed money services businesses'
accounts in order either not to incur the
burden, risk or potential liability for
undertaking a de facto regulatory function, or
else to avoid supervisory sanctions for not
exercising such oversight.
H.R. 2893, 111th Cong. § 2(4) (2009).
The defendant banks now before us may have no incentive
at the motion to dismiss stage to offer explanations that may raise
factual issues unfit for resolution except upon summary judgment or
trial. But, happily for them, they have no need to establish their
own motives unless and until Méndez makes out a plausible federal
claim under Twombly and Iqbal standards. This case bears out the
wisdom of the Supreme Court's requirements in screening out
rhetoric masquerading as litigation.
A cardinal requirement of civil RICO liability is the
allegation of the commission, or attempt or conspiracy to commit,
defined predicate acts needed to establish "a pattern of
racketeering activity or collection of unlawful debt." 18 U.S.C.
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§ 1962(c). Acts in two defined predicate-act categories were
alleged by Méndez: mail or wire fraud, 18 U.S.C. §§ 1341, 1343,
and extortion, 18 U.S.C. § 1951. We begin with the allegations of
fraud which, under applicable pleading rules, Fed. R. Civ. P. 9(b),
must be alleged with particularity.
As to the banks, Méndez' complaint states that the
"cancellations contained misrepresentations inasmuch as the banks
knew that the plaintiff was not a money service business, and that,
even if the plaintiff was, the banks had substantial regulatory
guidance to effectively provide the services with no regulatory
risk." So, his first theory is that the banks denied him the use
of accounts for his dinar sales because they deemed him to be
within the MSB category; this, he says, must be fraudulent because
he "does not operate as one" since he does not provide the "myriad
of services" associated with MSB operations.
But the very regulation he cites makes clear that to do
any buying or selling of currency, exceeding $1,000 with any other
person in one day, is enough for MSB status under the regulation.3
Further, Méndez goes on in his own complaint to say that while he
does not provide a full bevy of services listed in the regulation,
3
MSBs may engage in a range of money-related transactions--
including trading of currency, check cashing, and transmission--but
entities conducting only one type of transaction also can fall into
the category; buyers or sellers of currency in a substantial amount
are one type of MSB. 31 C.F.R. § 103.11(uu) (2009) (FDIC
definition).
-8-
"regulations require that [his business] register because the
business might qualify as such," that is, as an MSB. This is not
an allegation of fraud but an affirmation of the truth of the
supposed false statements.
On appeal, Méndez instead asserts the second theory, in
which a different falsehood is being perpetrated, namely, that the
banks say that they do not want to have accounts used to conduct
MSB activities but their real reason for refusing to deal with
Méndez is that they wish to drive him out of the dinar selling
business in order to take it over for themselves. But there is no
allegation that the banks supply dinars to anyone, that they have
taken any steps to become such suppliers, or that they have
expressed any interest in doing so.
In all events, the predicate fraud statutes cover only
material falsehood, which has "a natural tendency to influence, or
is capable of influencing, the decision of the decisionmaking body
to which it was addressed." United States v. Moran, 393 F.3d 1, 13
(1st Cir. 2004) (quoting Neder v. United States,
527 U.S. 1, 16
(1999)). Even if the banks were implicitly misrepresenting their
motive for not dealing with Méndez, it is not the falsity of their
excuse that causes him damage but their refusal to provide him with
accounts.
As to Arvelo, in fraud cases, the familiar pattern is a
material deceitful statement or omission causing the victim to
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undertake a transaction that inflicts economic loss on the
defrauded party and ordinarily benefits the deceiving party.4
There is no suggestion that Arvelo stands to gain financially by
causing Méndez to fail. And there is no suggestion that anyone was
swayed by Arvelo's statements: Méndez himself certainly was not
beguiled by any lies told about him by Arvelo, nor does he claim
that the banks were deceived, charging instead that they were
conspirators with Arvelo.
Admittedly, "fraud" is a concept with indistinct
boundaries. There may perhaps be situations in which a "scheme or
artifice to defraud," 18 U.S.C. §§ 1341, 1343, can have some
purpose other than the usual aim "to obtain . . . money or other
property" by means of deceit, United States v. Kenrick, 221 F.3d
19, 26-27 (1st Cir. 2000) (discussing parallel language for bank
fraud under 18 U.S.C. § 1344); and the federal statutes can reach
beyond common-law fraud.5 But merely alleging defamation--which is
4
See, e.g., Restatement (Second) of Torts § 531 (1977) (one is
liable for fraud to people "whom he intends or has reason to expect
to act or to refrain from action in reliance upon the
misrepresentation, for pecuniary loss suffered by them through
their justifiable reliance in the type of transaction in which he
intends or has reason to expect their conduct to be influenced").
5
In particular, unlike common-law fraud, mail and wire fraud
does not require first-party reliance, though "it may well be that
a RICO plaintiff alleging injury by reason of a pattern of mail
fraud must establish at least third-party reliance in order to
prove causation." Bridge v. Phoenix Bond & Indem. Co., 128 S. Ct.
2131, 2144-45 (2008).
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the gravamen of Méndez' charge against Arvelo--can standing alone
hardly be enough to comprise fraud.
As for extortion--the other predicate alleged--it too
fails on the face of the complaint. Extortion, under the Hobbs
Act, is "the obtaining of property from another, with his consent,
induced by wrongful use of actual or threatened force, violence, or
fear, or under color of official right." 18 U.S.C. § 1951(b)(2).
There is no allegation in the complaint of actual extortion, as
Méndez concedes; as for conspiracy or attempt, the complaint says
only that the defendants "entered into a conspiracy to extort the
plaintiff," a conclusory assertion inadequate under Twombly, 550
U.S. at 555.
In his appellate brief, Méndez now alleges that the
defendants sought his business in selling dinars and argues that
they "attempted to obtain such property . . . even if the property
would not be used by them." His explanation betrays a
misunderstanding of "obtain"--disrupting or attempting to close a
business is not an attempt to obtain that business, Scheidler v.
Nat'l Org. for Women, Inc., 537 U.S. 393, 404-05, 410 (2003)--and
again there is no allegation in the complaint that any of the
defendants in fact sell dinars or that they sought to supplant
Méndez or acquire any of his customers.
Thus, lacking a proper allegation of either class of
predicate acts, Méndez' RICO claim fails at the pleading stage. In
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addition, Méndez' claim is based upon a RICO enterprise, 18 U.S.C.
§ 1961(4), that he describes as a "conspiracy" and "joint effort"
between the defendants. But there is no indication, apart from
these empty epithets, to indicate that Arvelo's negative statements
were made by or in cooperation with any of the banks; mere
conclusory allegations are, again, not enough.
The complaint also fails to state a claim under the BHCA.
The act provides in relevant part that a "bank shall not in any
manner . . . furnish any service . . . on the condition or
requirement . . . that the customer shall not obtain some other
credit, property, or service from a competitor of such bank." 12
U.S.C. § 1972(1)(E). Seemingly, the charge is that the banks are
refusing to give Méndez accounts in order to suppress competition
between the banks and an unidentified entity or entities that
supply Méndez with dinars to resell.
But yet again there is no allegation that banks supply
dinars to anyone or that they have sought to replace the unnamed
entities and become the suppliers of dinars to Méndez or anyone
else. It would be a different matter if the complaint alleged that
the banks had offered to give Méndez accounts so long as he bought
his dinars from the banks rather than his current suppliers; but
there is no allegation to this effect, let alone evidence that the
banks want to become Méndez' suppliers of dinars. As such, Méndez
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has not offered sufficient supporting facts to plead his BHCA
claim. As we have explained,
the price of entry, even to discovery, is for
the plaintiff to allege a factual predicate
concrete enough to warrant further
proceedings. . . . Conclusory allegations in a
complaint, if they stand alone, are a danger
sign that the plaintiff is engaged in a
fishing expedition.
DM Research, Inc. v. Coll. of Am. Pathologists, 170 F.3d 53, 55
(1st Cir. 1999).
The complaint does identify the content, although not the
occasions of publication, of statements by Arvelo about Méndez'
operations that--if false--might conceivably be defamatory.
Because the district court declined to exercise supplemental
jurisdiction, 28 U.S.C. § 1367(c)(3) (2006), the dismissal of the
non-federal claims was without prejudice, which leaves Méndez free
to pursue such local causes of action, if any he has.
This brings us finally to a tail-end issue occasioned by
the fact that certain of the defendant banks are now in
receivership and the FDIC succeeds to their interest and has
intervened in the appeal. Under the statutory scheme, 12 U.S.C. §
1821(d), the FDIC says that the plaintiffs had to file timely
administrative claims with the agency, absent which their claims
would be barred entirely.
According to the FDIC, Méndez asserts that such claims
were filed, but the FDIC has questioned this, saying its records
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show nothing but admitting that its records may be incomplete at
the early stage of receivership. However, since we are affirming
the district court's dismissal, the outcome is the same; Méndez'
claims are foreclosed against the receivership banks whether the
foreclosure results from the merits or time bar, and we need not
pursue this inquiry.
Affirmed.
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