Court Opinion

ID: 4209030
Source: CourtListenerOpinion
Date Created: 2017-10-04 16:00:54.419246+00
Date Added: 2024-06-11T14:40:53.206179
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 17a0555n.06

                                         No. 17-3091
                                                                                   FILED
                         UNITED STATES COURT OF APPEALS                        Oct 04, 2017
                              FOR THE SIXTH CIRCUIT
                                                                          DEBORAH S. HUNT, Clerk

RAFAEL M. CRUZ; GLORIA CRUZ;                         )
RAFAEL F. CRUZ,                                      )
                                                     )
       Plaintiffs-Appellants,                        )   ON APPEAL FROM THE UNITED
                                                     )   STATES DISTRICT COURT FOR
v.                                                   )   THE SOUTHERN DISTRICT OF
                                                     )   OHIO
PNC BANK, NATIONAL ASSOCIATION;                      )
PNC FINANCIAL SERVICES GROUP,                        )
INC.,                                                )
                                                     )
       Defendants-Appellees.                         )

       BEFORE: GIBBONS, COOK, and THAPAR, Circuit Judges.

       PER CURIAM. Drs. Rafael M. Cruz, Gloria Cruz, and Rafael F. Cruz appeal the district

court’s judgment dismissing their complaint against PNC Bank, National Association, and The

PNC Financial Services Group, Inc. (collectively “PNC”). As set forth below, we affirm.

       The Cruzes brought this putative class action against PNC for alleged violation of the

Ohio Securities Act (“OSA”), Ohio Revised Code § 1707.01 et seq. The Cruzes are the victims

of a Ponzi scheme perpetrated by William Apostelos and his associates.1 The Cruzes alleged

that, as part of this Ponzi scheme, Apostelos sold them and other investors unregistered

securities—promissory notes and corporate membership unit certificates—in violation of the

1
 Apostelos pleaded guilty to conspiring to commit mail fraud and wire fraud in violation of
18 U.S.C. §§ 1341, 1343, and 1349 and aiding and abetting theft or embezzlement from an
employee benefit plan in violation of 18 U.S.C. §§ 2 and 664. United States v. Apostelos,
No. 3:15-CR-148 (S.D. Ohio filed Oct. 29, 2015). The district court sentenced Apostelos to
180 months of imprisonment. Id.
No. 17-3091, Cruz v. PNC Bank, N.A.

OSA. According to the Cruzes, Apostelos deposited the proceeds from selling the unregistered

securities into a PNC business account (“8143 Account”) and made monthly interest payments to

investors from that account. The Cruzes claimed that PNC was liable for the illegal sale of

unregistered securities under Ohio Revised Code § 1707.43(A), alleging that “PNC participated

in or aided the sales of Unregistered Securities by, among other things, permitting Apostelos to

use his 8143 Account and other PNC accounts as an essential instrument in conducting his

Ponzi-scheme.”

       Pursuant to Federal Rule of Civil Procedure 12(b)(6), PNC moved to dismiss the Cruzes’

complaint for failure to state a claim upon which relief can be granted. The district court granted

the motion to dismiss, concluding that PNC could not be held liable under Ohio Revised Code

§ 1707.43(A) where PNC’s alleged conduct did not go beyond “normal commercial banking

activities” and where PNC did not directly assist Apostelos in making any sale of unregistered

securities. This timely appeal followed.

       We review de novo the district court’s dismissal for failure to state a claim pursuant to

Rule 12(b)(6). Thompson v. Bank of Am., N.A., 773 F.3d 741, 750 (6th Cir. 2014). “To survive a

motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Although a complaint need not

contain ‘detailed factual allegations,’ it does require more than ‘labels and conclusions’ or ‘a

formulaic recitation of the elements of a cause of action.’” Reilly v. Vadlamudi, 680 F.3d 617,

622 (6th Cir. 2012) (quoting Twombly, 550 U.S. at 555).

       Ohio Revised Code § 1707.43(A) provides remedies for the purchaser in an unlawful sale

of securities. In addition to allowing the purchaser to void a sale or contract for sale made in

violation of the OSA, section 1707.43(A) states that “[t]he person making such sale or contract

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No. 17-3091, Cruz v. PNC Bank, N.A.

for sale, and every person that has participated in or aided the seller in any way in making such

sale or contract for sale, are jointly and severally liable to the purchaser . . . for the full amount

paid by the purchaser.” Ohio Rev. Code § 1707.43(A). Liability under section 1707.43(A)

“targets the sales transaction” and “requires an act of participation or assistance in the sale and

some form of remuneration, either direct or indirect.” In re Nat’l Century Fin. Enters., Inc., Inv.

Litig., 755 F. Supp. 2d. 857, 884-85 (S.D. Ohio 2010).            In determining whether section

1707.43(A) imposes liability, the Ohio courts have considered several actions that could give rise

to liability:

        These factors include relaying information, such as the proposed terms of the sale,
        from the sellers to the investors, arranging or attending meetings between the
        investors and the sellers, collecting money for investments, distributing
        promissory notes and other documents to the investors from the sellers,
        distributing principal and interest payments to the investors, and actively
        marketing the security or preparing documents to attract investors.

Wells Fargo Bank v. Smith, No. CA2012-04-006, 2013 WL 938069, at *5 (Ohio Ct. App. Mar.

11, 2013).

        The Cruzes failed to allege any facts indicating that PNC participated in or aided

Apostelos in selling unregistered securities to investors, let alone that PNC even knew about

those sales. According to the Cruzes, “PNC participated in or aided the sales of Unregistered

Securities by, among other things, permitting Apostelos to use his 8143 Account and other PNC

accounts.” But “[t]he willingness of a bank to become the depository of funds does not amount

to a personal participation or aid in the making of a sale” under section 1707.43(A). Wells Fargo

Bank, 2013 WL 938069, at *6 (alteration in original) (quoting Hild v. Woodcrest Ass’n, 391
N.E.2d 1047, 1058 (Montgomery Cty. Ct. Com. Pl. 1977)). The Cruzes made the conclusory

assertion that “PNC took steps, through one or more of its local branch employees, to actively

promote the scheme” but failed to allege any facts showing that PNC or its employees “actively

                                                -3-
No. 17-3091, Cruz v. PNC Bank, N.A.

promoted” the sale of unregistered securities to investors. Instead, in support of this assertion,

the Cruzes alleged that PNC approved suspicious outgoing transfers from Apostelos’s accounts,

approved transfers among his accounts, authorized overrides to funds or account holds, adopted

special rules related to his extraordinary cash withdrawals, failed to file a suspicious activity

report, and failed to shut down his accounts “in the face of overwhelming evidence of fraud.”

These allegations involve PNC’s management of Apostelos’s depository accounts and fail to

show any connection between PNC and the securities transactions. The crux of the Cruzes’

complaint is that “PNC knew or should have known Apostelos was using the PNC accounts to

launder money as part of some larger criminal undertaking.” Such an allegation, however, even

if true, is insufficient to impose liability under section 1707.43(A).

       Because the Cruzes failed to allege any facts indicating that PNC participated in or aided

Apostelos in selling unregistered securities to investors, the district court properly dismissed

their complaint for failure to state a claim under Ohio Revised Code § 1707.43(A). Accordingly,

we AFFIRM the district court’s judgment.

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