Opinion ID: 8704066
Heading Depth: 3
Heading Rank: 3

Heading: Whether the Amended Complaint Pleads Fraud with the Requisite Specificity

Text: The FDIC next argues that Count V must be dismissed because BOA failed to meet the heightened pleading requirements of Fed.R.Civ.P. 9(b). “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). To state a claim for fraud, a plaintiff must allege the following elements with particularity: “(1) a false representation, (2) made in reference to a material fact, (3) with knowledge of its falsity, (4) with the intent to deceive, and (5) an action that is taken in reliance upon the representation.” In re Estate of McKenney, 953 A.2d 336, 342 (D.C.2008) (citation omitted). Motions to dismiss for failure to plead fraud with sufficient particularity are evaluated in light of the overall purposes of Rule 9(b), which is to “ensure that defendants have adequate notice of the charges against them to prepare a defense[,]” United States ex rel. McCready v. Columbia/HCA Healthcare Corp., 251 F.Supp.2d 114, 116 (D.D.C.2003), to discourage “suits brought solely for their nuisance value” or as “frivolous accusations of moral turpitude[,]” United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C.Cir.1981), and to “ ‘protect reputations of ... professionals from scurrilous and baseless allegations of fraud,’ ” id. at 1385 n. 103 (alteration in original) (quoting Felton v. Walston & Co., Inc., 508 F.2d 577, 581 (2d Cir.1974)). “[Although Rule 9(b) does not require plaintiffs to allege every fact pertaining to every instance of fraud when a scheme spans several years, defendants must be able to ‘defend against the charge and not just deny that they have done anything wrong.’ ” United States ex rel. Williams v. Martin-Baker Aircraft Co., Ltd., 389 F.3d 1251, 1259 (D.C.Cir.2004) (quoting United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1052 (9th Cir.2001)); accord McCready, 251 F.Supp.2d at 116 (reasoning that a court “ ‘should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts’ ” (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.1999))). In Count V, BOA alleges that Colonial actively concealed its own financial condition, as well as the financial condition of TBW and Ocala, and that these misrepresentations allowed the fraudulent scheme to continue undetected for at least seven years. (Dkt. No. 20 at ¶¶ 170, 172.). BOA maintains that in its capacity as Indenture Trustee, Custodian, and Collateral Agent under the Ocala Facility Documents, it reasonably relied on Colonial’s misstatements and omissions to its own financial detriment and to the financial detriment of DB and BNP. (Id. at ¶¶ 64-65, 171, 176.). According to BOA, but for Colonial’s acts, Ocala would not have issued the Ocala Notes, thereby allowing TBW and Colonial to steal the proceeds from the Notes, and leaving DB and BNP to bear the loss. (Id. at ¶ 176.). The factual allegations set forth in the Amended Complaint that support Count V are as follows: (1) TBW and Colonial conspired to divert funds from Ocala to cover the monetary shortfalls TBW was experiencing (Dkt. No. 20 at ¶ 63); (2) executives at Colonial have admitted that from late 2003 through August 2009, TBW and Colonial engaged in a scheme to defraud Ocala (Id. at ¶ 64); (3) this scheme defrauded third party lenders and creditors of billions of dollars, including Ocala (Id. at ¶ 65(g)); (4) Colonial provided materially false information to the FDIC and other regulators in order to conceal evidence of its fraudulent activity (Id. at ¶ 70); (5) Colonial, with its co-conspirators, diverted $50 million from an Ocala account at BOA (Id. at ¶ 74); (6) in March and April Of 2009, Colonial and its co-conspirators used $12,239,697.21 of Ocala funds to purchase assets for the benefit of TBW (Id. at ¶ 78); and (7) Colonial made numerous misrepresentations to regulators, including materially false filings with the Securities and Exchange Commission that concealed the theft of Ocala’s assets (Id. at ¶ 82). In further support of its claim for fraud against Colonial, BOA incorporates by reference the June 15, 2010 indictment of Farkas (TBW’s former chairman), the Government’s June 16, 2010 Motion for Pre-Trial Detention of Farkas, and the Statements of Facts from the criminal proceedings involving Catherine Kissick (the former Senior Vice President of Colonial) and Teresa Kelly (the former Operations Supervisor in Colonial’s Mortgage Warehouse Lending Division). (Dkt. No. 20 at ¶ 64 fn. 6.). BOA asserts that these documents make clear that Colonial executives knew that in April 2005, Ocala funded $200 million in ineligible loans for TBW and were also aware that the same funds were being “shipped” back and forth in order to give the appearance that debt was being eliminated. (Id. at ¶ 90(b), (e).). The Court concludes that BOA has pled the fraud claim with sufficient particularity to survive the FDIC’s motion to dismiss. The underlying basis of this claim is a massive fraud that TBW and Colonial employees admit to endeavoring to hide for years. BOA claims that it does not have all of the documents necessary to fully set forth the claims (many, it asserts, are in the possession of the FDIC). (Id. at ¶ 2.). It may be that after discovery, BOA will not be able to substantiate this claim. However, at this stage of the proceedings, BOA has sufficiently pled the claim so as to give the FDIC adequate notice of the charges against it in order to prepare a defense, thereby satisfying the purpose of Rule 9(b). See McCready, 251 F.Supp.2d at 116. Accordingly, the FDIC’s motion as to Count V is denied.