ROTHENBERG, J.
We grant the appellant's motion for rehearing, withdraw our opinion filed on December 21, 2016, and substitute the following opinion in its place.
The trial court granted TD Bank, N.A.'s ("TD") motion to dismiss MP, LLC's ("MP") claims against TD based on the conclusion that the complaint fails to allege sufficient facts to support MP's claims against TD. Because the facts alleged are more than sufficient to withstand dismissal, we reverse.
Although MP has sued multiple defendants, its claims against TD are contained in Counts II and VII for civil conspiracy; Count IV for violation of Florida's RICO Act statute; and Count X for aiding and abetting another defendant's breach of its fiduciary duties to MP. Before addressing the allegations, it is important to note that TD is the successor in interest to Mercantile Bank ("Mercantile"), and because they represent one entity, they will be referred to either as "the Bank" or, when appropriate, the specific bank will be identified.
The operative complaint alleges as follows. While Mercantile was negotiating its takeover by TD, Mercantile realized that it needed to shore up its portfolio of non-performing loans in order to maximize the sales price and to avoid governmental scrutiny. Thus, the complaint alleges that Mercantile conspired with the four majority members ("the Majority Members") of Sterling Holding, LLC ("Sterling") and other entities owned by the Majority Members of Sterling ("the Non-Sterling Entities") without the knowledge and to the detriment of the plaintiff, MP, which was a Minority Member of Sterling.
At the time of the alleged conspiracy, the breakdown of Sterling's membership interests was as follows: Arriaga Enterprises owned a 25% interest; Howard Family Partners owned a 25% interest; Raffaele Williams owned a 25% interest; Scott Weinberg owned a 12.5% interest (combined, "the Majority Members of Sterling"); and MP owned a 12.5% interest. MP claims that in early 2010, when Mercantile was being sold to TD, the Non-Sterling Entities were in financial trouble or in default of their loans with Mercantile and that these loans were the largest non-performing loans in Mercantile's portfolio. Thus, MP claims that Mercantile conspired with the Non-Sterling Entities and the Majority Members of Sterling (who all had membership interests in the Non-Sterling Entities) to cross-collateralize these non-performing loans with solvent property owned by Sterling.
MP further alleges that in January 2014, the Bank declared a technical default of its loans to Sterling and the Non-Sterling Entities for failure to obtain the requisite insurance and to escrow two months of property taxes. Because Sterling's loan could not be carved out from the properties owned by the Non-Sterling Entities due to the cross-collateralization, a short sale was conducted and MP's 12.5% interest in Sterling was rendered worthless.
The trial court dismissed with prejudice MP's fifth amended complaint based on: (1) MP's failure "to narrow its legal theories to those most likely to sustain legal analysis under the facts"; (2) the trial court's inability to "identify in this repeated effort at pleading, any duty to MP which TD Bank breached"; (3) MP's failure to plead any facts demonstrating the Bank's actual knowledge that the documents it relied on, and which failed to reflect MP's existence, were false; (4) MP's failure to plead the elements of conspiracy as to the Bank; and (5) MP's failure to allege any facts demonstrating any action taken by the Bank to defraud MP. The trial court essentially found that if any fraud, conspiracy, or wrongdoing took place, it was without the Bank's knowledge and participation. As will be demonstrated below, the complaint clearly and repeatedly alleged the Bank's actual knowledge and participation in the alleged wrongdoing.
The dissent agrees with the trial court that the Bank's alleged wrongdoing is not actionable in tort. While we agree that generally the relationship between a lender and a borrower is contractual and thus does not normally extend the duties past what are contractually required, in this case, MP has alleged that the Bank conspired with the Sterling defendants to commit tortious acts against MP, and that the Bank itself committed tortious acts against MP for its own benefit. While we recognize that the allegations are just that — allegations, they are sufficiently pled to withstand dismissal for failure to state a cause of action.
Because the trial court was ruling on a motion to dismiss the complaint, rather than on a motion for summary judgment, the trial court was "required to `treat the factual allegations of the complaint as true and to consider those allegations in the light most favorable to the plaintiffs.'"
The elements of a claim for civil conspiracy are: "(a) an agreement between
The trial court found that the complaint failed to allege that the Bank was a part of the conspiracy, caused any harm, or had an independent duty to MP. Instead, the trial court found that the allegations in the complaint only show that the Bank was a passive and unknowing conduit for the alleged wrongdoings of the Non-Sterling Entities and the Majority Members of Sterling. Based on the following allegations taken from the operative complaint, the trial court's findings are clearly incorrect. The complaint clearly alleges that the Bank had actual knowledge as to each conspiracy
Paragraph 47 of the complaint alleges that prior to the April 2010 loan closing, a Credit Approval Request Memo was prepared. Paragraph 48 alleges that under the "Ownership/Management Composition" section of this memo, a breakdown of the ownership of each Sterling entity was provided, and in this breakdown, MP was listed as holding a 12.5% membership interest. Paragraph 49 states that "[a]s a consequence of the 2010 Memo, which was prepared prior to the execution of the April 2010 transaction,
Besides purposefully keeping MP out of the loop, paragraph 51 alleges:
The next several paragraphs explain that to effectuate the cross-collateralization, Mercantile required that each of Sterling's members sign off on the new obligation. The complaint then details the scheme that was allegedly orchestrated to hide MP's membership interest by falsifying the documents. Paragraph 60 specifically alleges that at the closing of the loan modification, sworn representations were made omitting MP's membership interest in Sterling, and states: "Of course, not only did Arriaga, Howard, Weinberg and Williams [the Majority Members of Sterling] know this was false, but
Paragraphs 71 and 72 also specifically allege the Bank's knowledge:
(emphasis added).
Count II realleges paragraphs 1 through 123 and then specifically lays out the allegations regarding the alleged scheme by the Bank and others to falsify the documents and omit MP's interests as a member of Sterling in order to preclude MP from objecting to the loan modification, cross-collateralization, and other actions for the benefit of the co-conspirators. Paragraphs 135 and 136 allege that there was an agreement by the Majority Members of Sterling (who also had membership interests in the Non-Sterling Entities) to omit MP as an owner of Sterling from the documents required by the Bank for the loan modification and cross-collateralization.
(emphasis added).
As this recitation of the allegations clearly demonstrates, Count II of the operative complaint sets forth more than sufficient allegations to satisfy the pleading requirements of civil conspiracy as it relates to the Bank. Contrary to the trial court's order, MP has sufficiently alleged that the Bank actually knew that the documents it relied on, and which failed to reflect MP's existence, were false. The complaint alleges that the Bank was not merely a passive conduit to the conspiracy and fraud allegedly committed by the Majority Members of Sterling; rather, the Bank was a willing and active participant in the scheme to keep MP in the dark in order to maximize the sales price of Mercantile to TD by shoring up Mercantile's portfolio.
The conspiracy alleged in Count VII involves the short sale of Palmetto Gardens Industrial Park ("Palmetto Gardens"), which was purchased by Sterling in 2005 with approximately $10.5 million in loans. Paragraph 22 alleges that this was a successful venture that produced a positive yearly cash flow. On or about June 29, 2009, Sterling entered into a promissory note, mortgage, and security agreement with the Bank in the amount of $14.4
Paragraph 203 of Count VII alleges that SAA, the management company for Sterling, and the Non-Sterling Entities
Paragraph 204 alleges that in January 2014, TD declared the anticipated technical default of the Palmetto Gardens loans.
Count VII further alleges that when MP learned of the Bank's declaration of default, it filed a lawsuit against the alleged conspirators, which, at that point, did not include the Bank. Shortly thereafter, the alleged conspirators and the Bank conspired to sell Palmetto Gardens at a short sale at a greatly reduced price, allowed two of the Majority Members of Sterling (Arriaga and Howard) to retain an under-the-table interest in Palmetto Gardens, and ensured that SAA be retained by the new owner to act as the management company for the property. Paragraphs 212 alleges that as part of the conspiracy, the Bank agreed to release all of the guarantors from millions of dollars in guarantees, even though the properties were sold at a discount, without requiring the guarantors to produce financial statements in order to determine their ability to cover the loans or cure the defaults.
Paragraph 217 alleges that the Bank entered into this agreement with the other alleged conspirators to avoid the allegations of wrongdoing against it in this lawsuit and to eliminate the bad debt it was carrying. And, as already articulated, the complaint alleges that the Bank was able to commit this conspiracy by knowingly accepting falsified documents omitting MP's membership interest so that the cross-collateralization could be accomplished in the first place.
As these allegations are more than sufficient to withstand dismissal for failing to satisfy the pleading requirements of civil conspiracy as it relates to the Bank, the trial court erred by dismissing Counts II and VII of the fifth amended complaint.
To survive a motion to dismiss Count IV, alleging a violation of the Florida Racketeer Influenced and Corrupt Organization Act ("RICO"), MP was required to plead the following elements:
As previously addressed, the operative complaint alleges that the Bank conspired with the Majority Members of Sterling and the Non-Sterling Entities to cross-collateralize the largest non-performing loans, and in some cases, loans which were in default, in Mercantile's portfolio prior to the sale of Mercantile to TD. To accomplish this goal, it is alleged that Mercantile conspired with the Majority Members of Sterling to allow the Bank to cross-collateralize Sterling's healthy and profitable properties with other defaulting and non-performing loans owed by the Non-Sterling Entities, in which the Majority Members of Sterling each had a financial interest. And to accomplish this cross-collateralization without drawing any attention, it is alleged that, with the Bank's knowledge and consent, fraudulent documents omitting MP's interest in Sterling were prepared by Sterling's Majority Members and were used by the Bank. This was done because MP, which held no interest in the Non-Sterling Entities, surely would have objected to and would have attempted to block the transaction, which would have drawn attention to the weaknesses in Mercantile's portfolio. Thus, the complaint sufficiently alleged the existence of and the Bank's participation in the RICO enterprise.
To establish a "pattern of racketeering activity," MP was required to plead facts establishing a continuing course of conduct or a "series of related predicates extending over a substantial period of time,"
MP has alleged that the wrongful predicate acts took place over a period of many months. The complaint alleges that the conspiracy, including the falsification and the acceptance of the falsified documents, took place in April 2010, and the refinancing was effectuated shortly thereafter. In January 2014, the Bank declared a technical default of the loans for Palmetto Gardens (the property owned by Sterling) and the Non-Sterling properties due to the failure to maintain insurance and escrow property taxes. (Paragraph 109). After the default was filed, MP filed the instant lawsuit against the alleged conspirators, except for the Bank, and put the Bank on notice that it might be added to the lawsuit. The complaint alleges that, thereafter, the Majority Members of Sterling,
The third and final element which must be pled when alleging a RICO violation is the existence of "at least two `incidents' of racketeering conduct that have the same or similar intents, results, accomplices, victims, or methods of commission, or that are otherwise interrelated by distinguishing characteristics and are not isolated incidents."
The intent of the co-conspirators was the same: financial gain. The purpose, result, and method of commission were all interrelated: to keep MP out of the loop in order to facilitate the cross-collateralization without drawing any attention, and to subsequently use the healthy Sterling properties to allow the Majority Members of Sterling to eliminate their bad debts with the Bank and to allow the Bank to remove these bad debts from its books.
Because the elements of RICO were all pled in the operative complaint, the trial court erred by dismissing Count IV based on MP's failure to sufficiently plead a cause of action.
The trial court's order failed to articulate the grounds upon which it dismissed Count X. We will, therefore, state the elements of aiding and abetting the breach of another's fiduciary duty, which admittedly is an uncommon, and yet not an unheard of cause of action,
To establish a cause of action for aiding and abetting another defendant's breach of its fiduciary duty to the plaintiff, the plaintiff must allege: "(1) a fiduciary duty on the part of the wrongdoer; (2) a breach of fiduciary duty; (3) knowledge of the breach by the alleged aider and abettor; and (4) the aider and abettor's substantial assistance or encouragement of the wrongdoing."
Count I specifically alleges that as the managing member of Sterling, Arriaga owed a fiduciary duty to each of the members of Sterling, including MP, and paragraph 127 lists eleven ways in which Arriaga breached his fiduciary duty to MP. Paragraph 129 also alleges that Howard Law Offices, the firm that represented Sterling in the 2010 loan modification and cross-collateralization, and Howard individually, owed a fiduciary duty to Sterling, including MP, and that Howard Law Offices and Howard breached that duty by preparing documents omitting MP's membership interest in Sterling and misrepresenting Sterling's membership interests. Thus, the first two elements were clearly alleged in the operative complaint. The third and fourth elements: the Bank's knowledge of the breach of fiduciary duties owed to MP by Arriaga, Howard Law Offices, and Howard, and the Bank's substantial assistance or encouragement of their wrongdoings, were also painstakingly pled in MP's complaint. It was, therefore, error for the trial court to dismiss Count X of MP's complaint.
The trial court's dismissal of MP's complaint was based on its inaccurate reading of the operative complaint and consideration of the elements relevant to each cause of action. Although the trial court's dismissal was based primarily on MP's failure to allege knowledge on the part of the Bank, the operative complaint clearly and repeatedly alleged the Bank's actual knowledge of and willing participation in the alleged wrongdoing. The trial court therefore erred by dismissing MP's complaint.
Reversed; remanded.
FERNANDEZ, J., concurs.
SCALES, J., dissenting.
I respectfully dissent and would not grant MP, LLC's motion for rehearing in this case. While the majority opinion is compelling, and contains an excellent out-line of the facts and causes of action alleged by MP, LLC, I would affirm the trial court's dismissal of MP, LLC's claims against TD Bank, N.A. because I am not persuaded that a commercial lender owes the alleged underlying duties to a minority member of one of the lender's borrowers.
Indeed, if true, the alleged actions of TD's predecessor, Mercantile Bank, might border on the unethical; but I agree with the trial court that such actions are simply not actionable in tort. In my view, the duties Mercantile, a commercial lender, owed to participants in the commercial
I am particularly concerned that the majority opinion imposes previously unrecognized obligations on commercial lenders to police the internal corporate governance of their borrowers. From a practical perspective, the majority's reversal seems to entangle lenders in borrowers' internal disputes. Not only might such entanglements deter lenders from making otherwise prudent loans, but to impose such duties on lenders might encourage an uncomfortable level of bank-meddling into the strictly internal affairs of borrowers.
I would deny rehearing.