United States District Court, D. Minnesota
R.J. Zayed, In His Capacity as Court-Appointed Receiver for the Oxford Global Partners, LLC, Universal Brokerage, FX, and Other Receiver Entities, Plaintiff,
Associated Bank, N.A., Defendant.
William W. Flachsbart, Esq. and Flachsbart & Greenspoon,
333 N. Michigan Ave., D. Timothy McVey, Esq. and McVey &
Parsky LLC, Keith A. Vogt, Esq. and Takiguchi & Vogt,
LLP, and Brian W. Hayes, Esq., Tara C. Norgard, Esq. and
Carlson Caspers Vandenburgh Lindquist & Schuman PA,
counsel for plaintiff.
Charles F. Webber, Esq and Faegre Baker Daniels LLP, and
Stephen M. Medlock, Esq. and Mayer Brown, LLP, counsel for
S. DOTY, JUDGE
matter is before the court upon the motions to exclude expert
testimony by Receiver R.J. Zayed and the motions for summary
judgment, sanctions, and to exclude expert testimony by
defendant Associated Bank. Based on a review of the file,
record, and proceedings herein, and for the following
reasons, the court grants the motion for summary judgment and
denies the remaining motions as moot.
background of this matter is fully set forth in the
court's September 30, 2013, and August 4, 2015, orders,
and the court recites only those facts necessary to resolve
the instant motions. See ECF Nos. 50, 78. This
receivership action arises out of a criminal Ponzi scheme
committed using Associated Bank accounts. The scheme
principals included, among others, Trevor Cook, Patrick
Kiley, and Chris Pettengill. Compl. ¶ 1, ECF No. 42. The
scheme purported to guarantee investors a return in excess of
10% annually through foreign currency trading with Crown
Forex, S.A., a Swiss company. Id. ¶ 3. In
furtherance of the scheme, the Receivership Entities opened
accounts with multiple financial institutions, including
Associated Bank. The Receiver alleges that Lien Sarles, a
former vice president of Associated Bank, had knowledge of
and assisted in the fraud.
banking relationship between Sarles and the scheme principals
began in December 2007 or January 2008. Sarles Decl. ¶
8. Kiley was referred to Sarles by Michael Behm, Sarles's
stepbrother, for commercial banking services. Id.
During the course of the banking relationship, Sarles
occasionally socialized with Cook. Sarles Dep. at 64:16-20;
174:10-175:2. During a meeting with Cook, Pettengill, and
others, Cook quoted lines, such as “greed is good,
” from the movies Wall Street and Boiler
Room, but there is no evidence that Sarles understood
that these comments referred to the ongoing Ponzi scheme.
See Pettengill Dep. at 124:21-125:20.
2008, Sarles personally assisted Kiley in opening several
commercial accounts, including account #1705 registered to
Crown Forex LLC, the domestic counterpart to Crown Forex,
S.A. Sarles Decl. ¶ 9; see Greenspoon Decl. Ex.
21, ECF No. 235. Kiley and Julia Smith were signatories on
the account. See Greenpoon Decl. Ex. 21. The
Receiver alleges that the Crown Forex account was integral to
the Ponzi scheme. Specifically, investors would deposit money
into the account, which was then transferred to other
Associated Bank accounts and accounts at other institutions
for personal use by the scheme principals. Compl. ¶ 33.
opened the Crown Forex account, despite lacking the necessary
Secretary of State registration documents. Sarles Decl.
¶ 14. Sarles testified that he opened the account with
the understanding that Kiley would provide the documents
later. Id.; Sarles Dep. at 109:6-16. Sarles, however,
did not follow up to obtain the necessary documentation. He
was later informed that the Bank would close or freeze the
Crown Forex account for lack of proper documentation, but
that never occurred. Sarles Decl. ¶¶ 17, 19.
understood that the Crown Forex account was an investment
account, but the account opening forms indicate that it was a
“Checking/Money Market” account. See id.
¶ 14; Sarles Dep. at 120:1-121:21; Greenspoon Decl. Ex.
21. Although the Crown Forex account was set up to wire
investment money to the foreign Crown Forex entity for
investment purposes, no international transfers appear to
have occurred. See Sarles Dep. at 120:24-121:21;
Greenspoon Decl. Ex. 22 at 34830; Id. Ex. 32. Sarles
also assisted Cook in opening several other accounts on which
Cook was the signatory, including account #2331, whichwas
registered to Oxford Global FX, LLC. Sarles Decl. ¶ 10;
Greenspoon Decl. Ex. 25 at 56568.
April 19, 2013, the Receiver filed this action, alleging
claims for aiding and abetting fraud, aiding and abetting
breach of fiduciary duty, aiding and abetting conversion, and
aiding and abetting false representations and omission
against Associated Bank based on Sarles's relationship
with Cook and the other scheme principals. Associated Bank
now moves for summary judgment.
Standard of Review
court shall grant summary judgment 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); see Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). A fact is material only when its
resolution affects the outcome of the case. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute
is genuine if the evidence is such that it could cause a
reasonable jury to return a verdict for either party. See
id. at 252 (“The mere existence of a scintilla of
evidence in support of the plaintiff's position will be
motion for summary judgment, the court views all evidence and
inferences in a light most favorable to the nonmoving party.
Id. at 255. The nonmoving party, however, may not
rest upon mere denials or allegations in the pleadings but
must set forth specific facts sufficient to raise a genuine
issue for trial. Celotex, 477 U.S. at 324. A party
asserting that a genuine dispute exists - or cannot exist -
about a material fact must cite “particular parts of
materials in the record.” Fed.R.Civ.P. 56(c)(1)(A). If
a plaintiff cannot support each essential element of a claim,
the court must grant summary judgment because a complete
failure of proof regarding an essential element necessarily
renders all other facts immaterial. Celotex, 477
U.S. at 322-23.
Aiding and Abetting Claims
state a claim for aiding and abetting under Minnesota law, a
plaintiff must show that (1) a primary actor committed a tort
that caused injury to the plaintiff, (2) the aider and
abettor knew that the primary actor's conduct constituted
a tort, and (3) the aider and abettor substantially assisted
or encouraged the primary actor in committing the tort.
Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d
179, 187 (Minn. 1999); see also In re Temporoamandibular
Joint (TMJ) Implants Prods. Liab. Litig., 113 F.3d 1484,
1495 (8th Cir. 1997) (same). The elements of knowledge and
substantial assistance are analyzed in tandem.
Witzman, 601 N.W.2d at 188. “Where there is a
minimal showing of substantial assistance, a greater showing
of [knowledge] is required.” Id. (citation and
internal quotation marks omitted).
determining whether the requisite showing of knowledge and
assistance exists the court will consider “[f]actors
such as the relationship between the defendant and the
primary tortfeasor, the nature of the primary
tortfeasor's activity, the nature of the assistance
provided by the defendant, and the defendant's state of
Law of the Case
Receiver argues that the facts as recited by the Eighth
Circuit Court of Appeals in its previous opinion in this
matter preclude summary judgment. See Zayed v. Associated
Bank, 779 F.3d 727 (8th Cir. 2013). The law is clear,
however, that a court is not bound by the facts recited by an
appellate decision at the pleading stage when deciding a
summary judgment motion. Burton v. Richmond, 370
F.3d 723, 728 (8th Cir. 2004). Therefore, the Eighth
Circuit's previous decision does not preclude summary
aider and abettor's knowledge of the wrongful purpose is
a crucial element in aiding or abetting cases.”
E-Shops Corp. v. U.S. Bank Nat'l Ass'n, 678
F.3d 659, 663 (8th Cir. 2012) (citation and internal
quotation marks omitted). “[W]here the conduct is not a
facial breach of duty, courts have been reluctant to impose
liability on an alleged aider and abettor for anything less
than actual knowledge that the primary tortfeasor's
conduct was wrongful.” Witzman, 601 N.W.2d at
188. In other words, “[w]hile knowledge may be shown by
circumstantial evidence, courts stress that the requirement
is actual knowledge and the circumstantial evidence
must demonstrate that the aider-and-abettor actually
knew of the underlying wrongs committed.”
Varga v. U.S. Bank Nat'l Ass'n, No. 12-3180,
2013 WL 3338750, at *6 (D. Minn. July 2, 2013) (emphasis in
original) (citations and internal quotation marks omitted);
see also El Camino Res. Ltd. v. Huntington Nat'l
Bank, 712 F.3d 917, 922-23 (6th Cir. 2013) (requiring,
under the Restatement definition of aiding and
abetting, that bank must have more than “strong
suspicion of wrongdoing”).
Receiver, citing Witzman, argues that constructive
knowledge, rather than actual knowledge, may also suffice.
See Witzman, 601 N.W.2d at 188 (“In cases
where the primary tortfeasor's conduct is clearly
tortious or illegal, some courts have held that a defendant
with a long-term or in-depth relationship with that
tortfeasor may be deemed to have constructive knowledge that
the conduct was indeed tortious.”). But the
Witzman court only noted in dicta, citing a Second
Circuit case, that some courts hold that constructive
knowledge can be sufficient in certain circumstances. Even if
Minnesota courts would apply a standard of constructive
knowledge, it does not apply here because the scheme was not
clearly tortious or illegal to those not directly involved;
indeed, the scheme involved multiple individuals, business
entities, and banks, was furthered by ostensibly legitimate
transactions, and went undiscovered for three years. See
id. (“[Defendant] may have reasonably believed
that these allegedly tortious dealings were legitimate
....”). Further, the two-year banking relationship
between the scheme principals and the Bank, including ...