541 B.R. 219
Bankr. D. Del.2015Background
- Chapter 11 trustee Richard Barry sued Santander alleging bank employees aided a multi‑scheme theft of Debtor assets (Ministrelli Trust sale, Hope Now mortgage modification scheme, MKwasnik Ponzi/notes offerings, and transfer of Lacey property).
- Central factual allegations: Santander Westmont branch employees notarized backdated/forged documents, opened and handled accounts used to receive and launder sale proceeds, ignored repeated internal fraud red flags, and lost notary logbooks and emails after the incidents.
- Trustee pleaded 11 causes of action including New Jersey civil RICO, federal RICO conspiracy, NJ Consumer Fraud Act, negligence, aiding and abetting (conversion, fraud, breach of fiduciary duty), unjust enrichment, failure to supervise, and attorneys’ fees.
- Santander moved to dismiss under Rule 12(b)(6), asserting (inter alia) in pari delicto (debtor culpability), failure to plead RICO elements and proximate cause for some schemes, lack of predicate offenses (bank fraud, mail/wire fraud aiding/abetting), and absence of duty to non‑customers.
- Court applied Twombly/Iqbal and a slightly relaxed Rule 9(b) for trustee fraud allegations (some discovery had occurred), took judicial notice of prior filings, and parsed claims by the four transactions.
- Rulings in brief: claims tied to the MKwasnik notes/Ponzi scheme were dismissed on in pari delicto grounds; direct claims tied to the Hope Now scheme were dismissed for lack of proximate cause but vicarious liability/aiding and abetting claims survived; claims arising from the Ministrelli Trust Theft and the Lacey Property Theft survived dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) In pari delicto (debtor culpability re: Ponzi/notes offerings) | Trustee alleged Santander aided external conspirators; Debtors were victims of looting. | Santander showed record evidence Debtors and insiders (MKwasnik) orchestrated notes offerings; in pari delicto bars trustee recovery. | Court: Dismissed all claims arising from MKwasnik Ponzi/notes offerings on in pari delicto; judicially noticed materials showed debtor benefit/culpability. |
| 2) RICO sufficiency (existence of enterprise, scienter, pattern) re: Ministrelli Trust & Lacey property | Trustee alleged enterprise of conspirators, Santander knowingly participated (fraudulent notarizations, account handling), and committed multiple predicate acts (tampering, money laundering, transportation of stolen goods). | Santander argued insufficient enterprise detail, lack of scienter, failure to plead required predicate offenses (bank fraud, mail/wire fraud aiding/abetting), and no proximate causation for some schemes. | Court: RICO claim survives as to Ministrelli Trust and Lacey Theft — enterprise, scienter (circumstantial), related predicate acts (tampering, money laundering, 18 U.S.C. §2314) adequately pled; rejected bank fraud and mail/wire predicate theories tied to Santander devising the schemes. |
| 3) Proximate cause re: Hope Now scheme (losses to Debtors’ trust account) | Trustee: Santander’s account handling and ignoring red flags proximately caused loss to Debtors. | Santander: Debtors were not the intended victims of Hope Now; no allegations Santander caused the Debtors’ $237,000 loss (different institution custody). | Court: Dismissed direct RICO and CFA and negligence claims tied to Hope Now for lack of proximate cause; but allowed vicarious/aiding‑and‑abetting claims to proceed. |
| 4) Predicate offenses and aiding/abetting liability | Trustee pleaded multiple federal and state predicates and aiding/abetting theories against Santander. | Santander contended (a) bank fraud under §1344 requires intent to defraud a bank (not met), (b) civil aiding/abetting of Title 18 predicates is not recognized; (c) some state predicates insufficiently pled. | Court: Rejected bank fraud predicate and mail/wire/aiding‑and‑abetting of Title 18 predicates per Rolo/Central Bank; accepted falsifying/tampering with records, money laundering, transportation of stolen goods predicates; aiding/abetting common‑law claims survive where scienter and substantial participation pled. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 8)
- Ashcroft v. Iqbal, 556 U.S. 662 (Rule 8 and mens rea pleading; scienter may be alleged generally)
- State v. Ball, 661 A.2d 251 (N.J. 1995) (definition of "enterprise" under New Jersey RICO)
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir.) (circumstantial evidence may establish scienter)
- Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644 (3d Cir. 1998) (no private cause of action for aiding/abetting Title 18 predicates)
- Picard v. JPMorgan Chase Bank & Co. (In re Madoff), 721 F.3d 54 (2d Cir. 2013) (adverse‑interest exception to in pari delicto)
- Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (private liability for aiding/abetting securities violations not implied)