Opinion ID: 2783176
Heading Depth: 2
Heading Rank: 1

Heading: Aiding and Abetting Claims

Text: In Minnesota, a tort claim for aiding and abetting has three elements: (1) the primary tortfeasor must commit a tort that causes an injury to the plaintiff; (2) the defendant must know that the primary tortfeasor’s conduct constitutes a breach of duty; and (3) the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach. Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 187 (Minn. 1999) (en banc). The second and third elements are in dispute in this case, and they are evaluated “in tandem.” Id. at 188 (quotation omitted). “Whether the requisite degree of knowledge or assistance exists depends in part on the particular facts and circumstances of each case.” Id. We 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 mind.” Id. “[Federal] Rule [of Civil Procedure] 9(b)’s particularity requirement for fraud applies equally to a claim for aiding and abetting.” E-Shops Corp. v. U.S. Bank N.A., 678 F.3d 659, 663 (8th Cir. 2012) (applying Minnesota substantive law). “Rule 9(b) requires plaintiffs to plead ‘the who, what, when, where, and how: the first paragraph of any newspaper story.’” Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir. 2011) (quoting Great Plains Trust Co. v. Union Pac. R.R., 492 F.3d 986, 995 (8th Cir. 2007)). Still, as Associated Bank concedes, “knowledge . . . may be alleged generally.” Fed. R. Civ. P. 9(b). “But ‘generally’ is a relative term. . . . Rule 9 . . . does not give [a party] license to evade the less rigid—though still operative—strictures of Rule 8.” Iqbal, 556 U.S. at 686-87. -8-
“[A]iding and abetting liability is based on proof of a scienter—the defendants must know that the conduct they are aiding and abetting is a tort.” Witzman, 601 N.W.2d at 186. “An aider and abettor’s knowledge of the wrongful purpose is a ‘crucial element in aiding or abetting’ cases.” E-Shops, 678 F.3d at 663 (quoting FDIC v. First Interstate Bank of Des Moines, N.A., 885 F.2d 423, 431 (8th Cir. 1989)). The receiver alleges Sarles—and thus Associated Bank—actually knew he was helping the schemers perpetuate their fraud, breach a fiduciary duty, convert the investors’ money, and make false representations and omissions. As to “the relationship between the defendant and the primary tortfeasor,” Witzman, 601 N.W.2d at 188, Sarles was introduced to Kiley by Sarles’s step-brother, who worked for Kiley, and Sarles visited Kiley at his home, which doubled as Kiley’s place of business, before Kiley appeared at the bank to open an account. Sarles knew the Crown Forex LLC account was ostensibly created as a vehicle for investors to be able to take part in the schemers’ so-called investment plan, and Sarles knew the money in the Crown Forex LLC account was to be transferred to a Crown Forex, SA account in order to accomplish the planned investment. Yet none of the transfers of investors’ funds Sarles facilitated were from Crown Forex LLC to Crown Forex, SA. Sarles actually knew Crown Forex LLC was not registered with the Secretary of State of Minnesota when Associated Bank accepted the account application stating registration documentation was gleaned from the secretary’s website. Sarles stated in his affidavit, “I told Kiley that he must send the documentation to me after he completed a Secretary of State filing for Crown Forex LLC.” (Emphasis added). But this fact did not stop Sarles from personally helping Kiley and Smith open the account and signing a document on behalf of Associated Bank stating Crown Forex LLC was organized under the laws of Minnesota. Sarles knew Associated Bank’s monitoring department would freeze or close accounts without proper documentation, -9- and he knew Crown Forex LLC did not submit the documentation. Sarles admits he never contacted Kiley about the missing documentation to prevent Kiley’s account from being frozen or closed. Finally, even though Sarles actually knew Kiley and Smith were the signatories on the Crown Forex LLC account, Sarles knowingly authorized Cook, a nonsignatory, to withdraw millions of dollars of investor money and deposit much of it in Cook’s personal accounts. Associated Bank declares, “it is the obligation of a bank to permit a customer to transfer or withdraw his or her funds from an account.” But we accept as true the clearly pled fact that the Crown Forex LLC account funds Cook withdrew were not Cook’s funds. Associated Bank cannot claim it is obligated to permit one customer, like Cook, to withdraw another customer’s funds. To the extent a jury would afford Ponzi schemer Cook’s assertions any credibility, Cook stated he did not think Sarles knew there was anything “fishy” about opening the Crown Forex LLC account. We consider Cook’s general statements as to Sarles’s awareness of the fraud alongside the other well-pled facts in the complaint. See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (“[T]he complaint should be read as a whole, not parsed piece by piece to determine whether each allegation, in isolation, is plausible.”). And despite Associated Bank’s assertions—(1) to the district court that the receiver “has deposed the relevant players,” and (2) to this court that the receiver “knows essentially everything he is ever going to know about what happened here”—the key player in this case, Sarles, has not been deposed by anyone, as far as we know. The district court emphasized ¶ 74 of the complaint, which states, “Had Associated Bank investigated any of the numerous red flags it had before it as raised by several employees, Associated Bank would have uncovered and prevented the Ponzi scheme from flourishing.” The district court read ¶ 74 as an admission by the -10- receiver that Associated Bank did not have actual knowledge of the scheme, but merely “should have known” about the scheme from the various “red flags” in view. But reading the complaint “as a whole,” Braden, 588 F.3d at 594, the receiver “generally alleges the knowledge element in multiple paragraphs” and “also alleges circumstances strongly indicating knowledge” as to Sarles in particular, Anderson v. U.S. Bank N.A., No. A13-0677, 2014 WL 502955, at  (Minn. Ct. App. Feb. 10, 2014) (unpublished). The receiver’s “complaint details the Ponzi transactions, including dates and amounts of deposits and withdrawals, spanning over a period of several years. Given [Associated Bank’s] vigorous denial of having known of the Ponzi scheme, it is hard to envision how knowledge might be pleaded with any more particularity than [the receiver] has pleaded it.” Anderson, 2014 WL 502955, at . We conclude the facts as alleged in the receiver’s complaint state “a plausible claim,” Iqbal, 556 U.S. at 679, of the actual knowledge aiding and abetting element. Because we find the receiver adequately pled actual knowledge, we need not consider the receiver’s alternate argument that constructive knowledge of the scheme by Associated Bank could also suffice.
“In addressing aiding and abetting liability in cases involving professionals, most courts have recognized that ‘substantial assistance’ means something more than the provision of routine professional services.” Witzman, 601 N.W.2d at 188-89; see Anderson, 2014 WL 502955, at  (finding “Witzman’s special-policy concerns regarding professionals apply with some force to banks”). “Some affirmative step is required, because ‘the mere presence of the particular defendant at the commission of the wrong, or his failure to object to it, is not enough to charge him with responsibility.’” Am. Bank of St. Paul v. TD Bank, N.A., 713 F.3d 455, 462 (8th Cir. 2013) (quoting Witzman, 601 N.W.2d at 189). “Assistance must ‘further the fraud itself, and not merely constitute general aid to the tortfeasor.’” Anderson, 2014 WL -11- 502955, at  (quoting El Camino Res., Ltd. v. Huntington Nat’l Bank, 722 F.Supp. 2d 875, 910-11 (W.D. Mich. 2010)). The district court found the receiver did not adequately plead Associated Bank provided substantial assistance in the Ponzi scheme. But the district court does not mention the fact Sarles knowingly opened a bank account for a non-registered entity to hold investors’ money and then authorized Cook, a non-signatory, to withdraw millions of dollars of investor money and deposit much of it into Cook’s personal accounts. These were not routine transfers, see Witzman, 601 N.W.2d at 189, nor “quintessential banking activities,” as Associated Bank describes them. Taking the well-pled facts as true, as we must, a jury reasonably could infer Associated Bank, through its vice president Sarles, knowingly opened undocumented bank accounts and facilitated the unauthorized transfer of investors’ funds into the schemers’ personal accounts—an obvious misappropriation. We cannot predict whether a jury, surveying the evidence supplemented by discovery, will find Associated Bank either had actual knowledge of or substantially assisted in the asserted torts. But the facts alleged in the complaint give the receiver’s claims “facial plausibility”—the receiver has pled “factual content that allows the court [and a jury] to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.